The US Federal Reserve has slashed its forecasts for economic growth over the next two years and hiked inflation expectations in a fresh blow to Donald Trump.
On Wednesday, expectations for US GDP growth this year were slashed from 1.7pc to 1.4pc, and from 1.8pc to 1.6pc in 2026, versus the central bank’s March projections.
Inflation will also rise to 3pc this year, up from the March forecast of 2.7pc.
The chairman of the US Federal Reserve, Jay Powell, effectively blamed Donald Trump’s trade war for pushing up forecasts for inflation, as the bank warned tariffs will bring “meaningful” price rises in the coming months.
Mr Powell warned that the true impact of Mr Trump’s trade tariffs have not yet flowed through to higher consumer prices but that this will become evident this summer.
He said: “We expect a meaningful amount of inflation to arrive in the coming months, and we have to take that into account.”
“What we learned, particularly in April, was that substantially larger tariffs were coming in, and that would mean higher inflation.
“That’s what happened. So you saw 2.5pc [inflation for 2025] forecast in December, you saw 2.8pc in March and you see 3.1pc now. So it’s six tenths higher inflation for 2025.
“And that’s a big part of the change that’s due to the effects of tariffs. We don’t where they’re going to land but it’s pretty apparent they going to land higher than outside forecasters were really guessing at the end of last year.”
The Federal Open Market Committee (FOMC) voted unanimously to keep interest rates on hold at 4.25pc to 4.5pc, a decision that will be a great source of irritation to the US president.
Mr Trump has been complaining loudly about the Fed’s hesitancy to cut interest rates. Last week, he called Mr Powell a “numbskull” and said he “may have to force something”. On Wednesday he also labelled Mr Powell “stupid”.
However, Mr Trump has stopped short of making threats to sack Mr Powell, as he did back in April, spooking markets and triggering a rise in Treasury yields.
The Fed has been keeping interest rates on hold since its last rate cut in December, ending a cutting cycle that it started in 2024, much to the irritation of the president.
The FOMC said it still expected to make two rate cuts this year. The Fed also raised its forecasts for the unemployment rate from 4.4pc to 4.5pc this year and from 4.3pc to 4.5pc in 2026.
The growth downgrade followed a similar move in March, when the Fed cut its outlook for the US economy in 2025 from 2.1pc to 1.7pc.
Since then, Mr Trump announced sweeping “reciprocal” tariffs of up to 50pc at the start of April, in a huge escalation of his trade war.
Although Mr Trump then cut these “reciprocal” charges to 10pc, the average charge on US imports is still far higher than when he took office. The reprieve was also only supposed to be temporary, and in theory expires on July 9.
Fears are also mounting that the conflict that has erupted between Israel and Iran, which has triggered a jump in oil prices, could push up energy prices, bringing new inflationary pressures.
Información extraída de: https://finance.yahoo.com/news/fed-downgrades-growth-fresh-blow-193006748.html
