Federal Reserve Raises Inflation Forecasts Amid Economic Shifts

According to Odaily, the Federal Reserve's economic outlook has undergone significant changes, yet interest rate expectations have not fully adjusted to these shifts, raising the threshold for potential rate cuts. Federal Reserve officials have consecutively increased the core PCE inflation forecast, moving from 2.2% in September 2023 to 2.5% in December 2023, and further to 2.8% by March 2024, with projections extending to the end of 2025. Some officials have even raised their inflation forecasts for 2026 and 2027. Among 19 officials, 18 perceive inflation risks as tilted to the upside, suggesting that the Federal Reserve might require a notable weakening in the labor market before considering rate cuts. Federal Reserve Chair Jerome Powell attributed the upward revision in inflation forecasts "almost entirely" to changes in trade policy. Former Federal Reserve officials believe that the institution may find it challenging to overlook the inflationary pressures caused by tariffs and might wait for more evidence of economic slowdown before taking action.