Federal Reserve Addresses Economic Uncertainty Amid Inflation Concerns
The U.S. central bank maintains interest rates while revising economic growth and inflation forecasts.
On Wednesday, the Federal Reserve decided to keep interest rates steady in the range of 4.25%-4.50%, reflecting increasing uncertainty regarding the American economy.
This decision comes on the heels of former President Donald Trump's return to the political arena, which the Fed acknowledges has added complexity to economic predictions.
According to the Federal Open Market Committee (FOMC), projections for economic growth have been lowered while inflation expectations have risen for this year, influenced in part by tariffs.
Federal Reserve Chair Jerome Powell recognized a prior misjudgment regarding inflation being ‘transitory,’ a term he cautiously revisited, highlighting fears rooted in past policy decisions.
Despite the revisions, the Fed maintains its forecast for two 0.25 percentage point cuts in official interest rates by the end of 2025, suggesting a target range of 3.75%-4.00%.
Powell emphasized that there is no immediate urgency for these reductions, clarifying that investors should not expect such moves in the upcoming monetary policy meetings.
Three months ago, the Fed had anticipated two cuts this year, but recent economic weaknesses have prompted a more cautious outlook.
Projections for GDP growth in 2025 have been revised from 2.1% to 1.7%, and expectations for unemployment at the end of the year have increased slightly from 4.3% to 4.4%.
Inflation, measured by the Personal Consumption Expenditures (PCE) price index, has also been adjusted upward from 2.5% to 2.7%.
Powell outlined the impact of tariffs on inflation expectations, indicating they are a significant factor in the recent rise in price forecasts.
He suggested that inflation has begun to escalate partly as a consequence of these tariffs, cautioning that further impact may take time to materialize.
While acknowledging these inflationary pressures, Powell refrained from attributing the decline in growth expectations solely to Trump's erratic economic policies, stating, “It is too early to see significant effects in economic data.” He noted that the current situation presents a notably high level of uncertainty.
The Fed has assessed that recession risks have increased but remain relatively low, with Powell noting that typically there is a one in four chance of entering a recession within the next 12 months.
He has dismissed concerns about stagnation—characterized by high inflation and low growth—as not currently applicable.
Investors responded positively to Powell’s remarks, viewing the health of the U.S. economy as stable.
The central bank has reiterated that its decisions will hinge on incoming economic data, emphasizing a continuous monitoring of labor market conditions and inflation pressures.
The committee's statement mirrors its previous communication from January, emphasizing that risks to achieving its dual mandate of maximum employment and stable prices are balanced.
The Federal Reserve is also slowing the pace of its balance sheet reduction, cutting the monthly roll-off of debt securities from $25 billion to $5 billion, as concerns persist about the legal ceiling on federal debt and ongoing tensions in money markets.
In recent months, Powell has consistently expressed a lack of urgency to adjust interest rates further, highlighting the ongoing restrictive nature of current monetary policy.
As inflation remains above target levels and unemployment rates stay historically low, the Fed's cautious approach continues amidst the economic turbulence attributed to recent policy changes.
This decision comes on the heels of former President Donald Trump's return to the political arena, which the Fed acknowledges has added complexity to economic predictions.
According to the Federal Open Market Committee (FOMC), projections for economic growth have been lowered while inflation expectations have risen for this year, influenced in part by tariffs.
Federal Reserve Chair Jerome Powell recognized a prior misjudgment regarding inflation being ‘transitory,’ a term he cautiously revisited, highlighting fears rooted in past policy decisions.
Despite the revisions, the Fed maintains its forecast for two 0.25 percentage point cuts in official interest rates by the end of 2025, suggesting a target range of 3.75%-4.00%.
Powell emphasized that there is no immediate urgency for these reductions, clarifying that investors should not expect such moves in the upcoming monetary policy meetings.
Three months ago, the Fed had anticipated two cuts this year, but recent economic weaknesses have prompted a more cautious outlook.
Projections for GDP growth in 2025 have been revised from 2.1% to 1.7%, and expectations for unemployment at the end of the year have increased slightly from 4.3% to 4.4%.
Inflation, measured by the Personal Consumption Expenditures (PCE) price index, has also been adjusted upward from 2.5% to 2.7%.
Powell outlined the impact of tariffs on inflation expectations, indicating they are a significant factor in the recent rise in price forecasts.
He suggested that inflation has begun to escalate partly as a consequence of these tariffs, cautioning that further impact may take time to materialize.
While acknowledging these inflationary pressures, Powell refrained from attributing the decline in growth expectations solely to Trump's erratic economic policies, stating, “It is too early to see significant effects in economic data.” He noted that the current situation presents a notably high level of uncertainty.
The Fed has assessed that recession risks have increased but remain relatively low, with Powell noting that typically there is a one in four chance of entering a recession within the next 12 months.
He has dismissed concerns about stagnation—characterized by high inflation and low growth—as not currently applicable.
Investors responded positively to Powell’s remarks, viewing the health of the U.S. economy as stable.
The central bank has reiterated that its decisions will hinge on incoming economic data, emphasizing a continuous monitoring of labor market conditions and inflation pressures.
The committee's statement mirrors its previous communication from January, emphasizing that risks to achieving its dual mandate of maximum employment and stable prices are balanced.
The Federal Reserve is also slowing the pace of its balance sheet reduction, cutting the monthly roll-off of debt securities from $25 billion to $5 billion, as concerns persist about the legal ceiling on federal debt and ongoing tensions in money markets.
In recent months, Powell has consistently expressed a lack of urgency to adjust interest rates further, highlighting the ongoing restrictive nature of current monetary policy.
As inflation remains above target levels and unemployment rates stay historically low, the Fed's cautious approach continues amidst the economic turbulence attributed to recent policy changes.
Translation:
Translated by AI
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