US Federal Reserve Chair Jerome Powell will speak on June 2, 2025 during a conference commemorating the 75th anniversary of the Federal Reserve Committee’s International Finance Bureau in Washington, DC.
Andrew Caballero-Reynolds | AFP | Getty Images
The Federal Reserve believes inflation is rising again this year amid growing uncertainty and geopolitical risks over President Donald Trump’s trade policy.
Participants on the Federal Open Market Committee said at their June meeting that they expected the core consumer spending price index, which excludes food and energy, to increase at a rate of 3.1% in 2025.
The PCE price index was 2.1% in April, coinciding with the lowest level since February 2021. Excluding food and energy, Core PCE was 2.5%. The latter is a Gauge Fed official who believes it is a better measure of long-term trends.
Central bank officials also see a further slowdown in economic growth, forecasting a gross domestic project, which has only grown by 1.4% this year. In March, they were hoping for a 1.7% pace of GDP growth.
Fed Chair Jerome Powell said at a post-meeting press conference that recent rise in inflation expectations could be linked to tariffs.
“Everyone I know has to pay someone from the tariffs, so I’m projecting a meaningful increase in inflation over the coming months,” Powell said. “It’s just that manufacturers, exporters, importers, retailers, and even someone ends up making it something that’s kind, or the consumers buy it, and it’s someone in that chain that I mentioned.”
“Through that chain, people are trying to make sure they have to pay the cost of tariffs, not what they can cost, and ultimately, they have to pay the cost of tariffs, and some of that falls to the end consumer,” he said.
Fed officials were reluctant to lower the rate, worrying that Trump’s tariffs could re-inflation in the coming months. The conflict between Israel and Iran adds another wildcard to the policy mix, as high government oil prices could prevent the Fed from easing policies.
Still, the so-called dot plot — which shows individual members’ expectations for interest rates — showed that they see the benchmark lending rate falling to 3.9% by the end of 2025.
Seven of the 19 participants indicated they did not want this year’s cut from four in March. Participants will also be reduced in 2026 and 2027.
This is the Fed’s latest target from both voters and non-voters FOMC members.
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