WASHINGTON (Realist English). The Federal Reserve on Wednesday downgraded its outlook for the U.S. economy in 2025, signaling heightened uncertainty over the direction of monetary policy as President Donald Trump’s renewed tariffs raise the specter of higher inflation and slower growth.
The Fed left its benchmark interest rate unchanged for the fourth consecutive meeting, maintaining the target range at 4.25–4.5%. But officials are now sharply split on whether rate cuts will happen at all this year.
According to the latest projections, seven members of the Federal Open Market Committee (FOMC) now expect no rate reductions in 2025 — up from four in March. Meanwhile, eight officials still foresee two quarter-point cuts, slightly down from nine in the previous forecast.
The central bank also cut its GDP growth projection for 2025 to 1.4%, down from 1.7% forecast in March. Unemployment is expected to rise from 4.2% to 4.5%, while core personal consumption expenditures (PCE) inflation — the Fed’s preferred metric — is now projected to increase from 2.1% to 3%, well above the Fed’s long-term target of 2%.
Fed officials warned that Trump’s new trade tariffs, branded as part of a “liberation day” economic agenda, have complicated the inflation outlook by putting upward pressure on prices while also slowing trade-related sectors.
Some policymakers now fear a stagflationary scenario — a combination of low growth and high inflation. Two rate-setters currently expect only one rate cut this year, down from four prior to Trump’s announcements, while another two still anticipate three quarter-point cuts.
Following the decision, U.S. Treasury yields dropped, with the two-year yield — which closely tracks interest rate expectations — hitting session lows. Meanwhile, U.S. equities rose, reflecting investor relief that rates were not raised amid growing economic risks.
The Fed’s next move is expected to hinge on incoming inflation data and the pace of consumer spending — both of which are now under the added influence of trade-related uncertainty.
