Federal Reserve Chair Jerome Powell presented the central bank's semiannual monetary policy report to the House Financial Services Committee in Washington, D.C. During this testimony, the Federal Open Market Committee (FOMC) released updated projections indicating a downward revision in the U.S. economic growth outlook. The FOMC now anticipates a growth rate of 1.7%, a decrease from the previously estimated 2.1% in December 2024.
In contrast to the lowered growth forecast, the FOMC has raised its inflation expectations, projecting core prices will increase at an annual rate of 2.8%, up from the earlier estimate of 2.5%. This shift in outlook raises concerns about potential stagflation, characterized by the simultaneous occurrence of stagnant economic growth and rising inflation.
The FOMC acknowledged increased uncertainty regarding the economic outlook and emphasized its attentiveness to risks associated with its dual mandate of promoting maximum employment and stable prices. Concerns about economic slowdown and inflation have been exacerbated by the tariffs imposed by the Trump administration, which are expected to elevate prices and impact consumer spending.
Despite these challenges, the Fed maintains a plan for two interest rate cuts in 2025, with the benchmark federal funds rate projected to be at 3.9% by year-end. The central bank's current interest rate is held steady in the range of 4.25% to 4.5%. Notably, the recent outlook indicates a more hawkish stance on rate changes, with four FOMC members forecasting no adjustments this year, compared to just one member’s similar view in January. The evolving economic landscape remains a focal point for policymakers moving forward.