Inflation Forecasts Rise, Rate Cuts Delayed by Trade-Driven Pressures

According to Odaily, the Federal Reserve has sharply revised its inflation outlook upward, yet interest rate expectations remain largely unchanged, increasing the threshold for potential rate cuts. Core PCE inflation forecasts have steadily climbed—from 2.2% in September 2023 to 2.5% in December 2023, and further to 2.8% by March 2024, with elevated projections extending through 2025. Some officials have even increased inflation expectations for 2026 and 2027, reflecting persistent inflation risks. Out of 19 officials, 18 view inflation risks as skewed to the upside, suggesting that the Federal Reserve may require a significant labor market slowdown before considering any rate reductions.

Federal Reserve Chair Jerome Powell attributed these inflationary adjustments “almost entirely” to shifts in trade policy. Former Federal Reserve officials caution that the institution may struggle to ignore the inflationary impact of tariffs and might wait for clearer evidence of economic deceleration before adjusting monetary policy. Overall, these developments signal a more cautious Fed stance in the face of ongoing economic shifts and trade-driven inflation pressures.