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Tuesday, Apr 29, 2025

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Federal Reserve Lowers Economic Growth Projections Amid Tariff Concerns

The Federal Reserve adjusts growth and inflation forecasts while maintaining interest rates in response to economic uncertainties linked to tariffs.
Officials at the US Federal Reserve have revised down their economic growth forecasts and raised expectations for inflation as they decided to keep interest rates steady.

In a statement released following their latest two-day policy meeting, the central bank noted that "uncertainty around the economic outlook has increased," largely attributed to the ongoing tariff policies proposed by the Trump administration.

In their updated projections, Federal Reserve policymakers expect inflation to average 2.7% in 2023, an increase from previous estimates of 2.5%.

Additionally, they now anticipate that the US gross domestic product (GDP) will grow by 1.7% this year, down from a prior estimate of 2.1% in December.

The outlook for GDP growth in 2026 and 2027 has also been adjusted downward to 1.8%.

Jerome Powell, the chair of the Federal Reserve, described the current level of uncertainty as "remarkably high" and acknowledged that many lack confidence in economic forecasts.

Powell linked the increase in inflation expectations to the impact of tariffs, stating that some of the inflationary pressure was “clearly” due to these trade policies.

The benchmark interest rate was maintained between 4.25% and 4.5%.

A closely monitored projection tool known as the dot plot indicated the possibility of two interest rate cuts during the course of this year.

In the United Kingdom, the Bank of England is also expected to announce its decision to hold interest rates steady at 4.5% in an upcoming meeting.

Since returning to the White House in January, Trump has initiated aggressive tariff policies aimed at reshaping the global economic landscape, generating significant reactions from both domestic and international markets.

Despite concerns from economists about the potential inflationary effects of increased tariffs on imported goods, the Trump administration maintains that these measures are necessary to rebalance trade dynamics to favor the United States and to boost federal revenues.

Powell emphasized the mixed signals from surveys taken among households and businesses, which reveal increased uncertainty regarding the economic landscape.

He stated, "It remains to be seen how these developments affect future spending and investment.”

The Federal Reserve aims for an inflation target of 2%.

Although inflation has significantly decreased from a high of 9.1% reached three years ago, it has yet to consistently meet the bank's target.

Following the Fed's announcement, Wall Street reported a slight uptick, with the S&P 500 closing up by 1.1% and the Nasdaq Composite rising by 1.4%.
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