LOWER GROWTH, HIGHER UNEMPLOYMENT
The Fed also said it will slow the ongoing drawdown of its balance sheet, known as quantitative tightening.
Fed Governor Chris Waller dissented from the policy statement because of the change in balance sheet policy.
The rate projections matched the expectations set by financial markets ahead of the meeting and kept intact the Fed’s general outlook that gradually slowing inflation will allow further monetary policy easing.
But it may be a rockier road getting there. While not mentioning President Donald Trump or tariffs in the statement, the Fed projections for higher inflation this year coincide with the unveiling of his tariff plans.
It appeared, though, that the central bank for now is looking through the price shift involved in those import taxes, treating them as a one-off change rather than a persistent source of price pressures.
Underlying inflation beyond 2025 was unchanged from the Fed’s projections in December, expected to return to 2 per cent by the end of 2027.
The projection for rate cuts beyond this year was also unchanged, hitting 3.1 per cent by the end of 2027, near the level seen as having a neutral effect that neither encourages nor discourages spending and investment.
The Fed cut its benchmark interest rate by a full percentage point last year but has kept rates on hold this year as it waits for further evidence that inflation will continue to fall, and, more recently, for more clarity about the impact of Trump’s policies.
Compared to Trump’s promise of a coming economic “golden age” because of his push to impose tariffs, deport large numbers of immigrants and loosen regulations, the Fed’s outlook forecasts growth at 1.7 per cent this year and just 1.8 per cent in both 2026 and 2027, with the unemployment rate at 4.4 per cent this year and 4.3 per cent in 2026 and 2027. The unemployment projections are above the lows of recent years and the latest reading of 4.1 per cent in February.
Source: CNA
