The Federal Reserve, the US Central Bank, has adjusted its estimate for inflation upwards. At the same time, the FED has reduced the prognosis for economic growth. The FED announced this on Wednesday evening after a board meeting.
For example, the Fed confirms the concerns of investors, and also of consumers, who increasingly think that President Donald Trump’s economic policy can turn out to be negative. In recent weeks it was apparent from declining stock prices and a falling consumer confidence.
The goods inflation has recently risen again in the US, said Jerome Powell, the president of the FED, in a press conference after the meeting. “Part of it, an important part of it, is probably due to the taxes,” he said, referring to the import duties on goods from several countries that Trump has been introduced to them since he took office in January. It is very difficult to distinguish the import duties from other factors, Powell said. But he also said: “Usually levies ensure lower growth and higher prices.”
Uncertain factors
Each of the twelve FED drivers can do prognoses themselves about GDP growth, unemployment and inflation. The average estimate for inflation in 2025 is now 2.7 percent, compared to 2.5 percent at the FED board meeting of December. The FED strives for inflation of 2 percent.
The FED drivers now assume that economic growth will be 1.7 percent in 2025, while this percentage at the meeting in December was still 2.1 percent. The expected unemployment, 4.4 percent, is a fraction higher than in December: 4.3 percent.
The Fed left the interest, as generally expected, unchanged, on a bandwidth between 4.25 and 4.5 percent. “The uncertainty is unusually high,” said Powell. He mentioned Trumps input levies, his migration policy, his deregulation agenda and his budget policy as uncertain factors.
Recession
The FED strives for a double goal: inflation of 2 percent and ‘maximum’ employment. The majority of drivers expect that this year it is necessary to lower the interest this year by 0.25 percentage point, after a series of interest rates last year. This was also the expectation in December.
The problem for the FED is that inflation fighting benefits from higher interest rates, but economic growth – and therefore employment – precisely with lower interest rates. The fact that the interest expectant of board members turned out to be the same as in December is because the higher inflation expectation and the lower growth forecast “compensate each other,” Powell said.
In the past weeks, the financial markets have grown that the US will be heading for a recession. The Fed is not yet assuming, Powell said: the GDP growth will remain positive in the coming years.
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