市場分析

Fed Signals Slower Growth, Higher Inflation as Tariffs Loom

Amos Simanungkalit · 20 Mar21.3K 閱讀

Image Credit: CNBC

The Federal Reserve decided to keep interest rates unchanged for the second consecutive meeting and maintained its previous expectation for two rate cuts later this year. However, it revised its outlook on inflation and economic growth due to uncertainties surrounding President Trump’s new tariffs on China, Canada, and Mexico.

Fed officials now predict inflation will remain higher than expected, with the core Personal Consumption Expenditures (PCE) inflation forecast rising to 2.8% by the end of 2025, up from the previous estimate of 2.5%. Additionally, economic growth is now expected to slow to an annual rate of 1.7%, down from the earlier 2.1%, while the unemployment rate may rise slightly to 4.4% from 4.3%.

Fed Chair Jerome Powell highlighted the uncertainty caused by tariffs, noting that while they tend to reduce growth and increase inflation, he expects the inflationary impact to be temporary. While progress in reducing inflation may be delayed, Powell maintained that the Fed’s goal of reaching a 2% inflation rate is still expected by 2027.

The Fed has decided to take a cautious approach, focusing on separating significant economic signals from temporary noise in assessing the impact of tariffs. Powell stressed there’s no rush to adjust monetary policy. The central bank kept its benchmark interest rate in the range of 4.25%-4.5%, following three rate cuts in late 2024.

Starting in April, the Fed will slow the reduction of Treasurys on its balance sheet, cutting the amount of bonds allowed to roll off from $25 billion to $5 billion per month, although it will continue to reduce mortgage-backed securities by $35 billion a month. Fed Governor Chris Waller dissented on this decision, preferring to maintain the current pace of bond reductions.

The Fed’s median estimate for two rate cuts in 2025 remains unchanged, despite some policymakers favoring fewer or no cuts. The biggest challenge ahead is balancing maximum employment with price stability amid growing uncertainties. Powell downplayed concerns of a stagflation scenario, comparing the current economic situation to the 1970s, stating there’s no reason to believe such a situation is likely.

The next PCE inflation report, expected next week, is anticipated to show that inflation remains above the Fed’s target, with a slight increase to 2.7% in February. Powell acknowledged that navigating the future economic landscape, especially with new policies from the Trump administration, will be challenging and uncertain.