The Federal Reserve has slashed its US growth forecast and lifted its inflation projection, underscoring concerns that Donald Trump’s tariffs and deep cuts to government agencies will knock the world’s biggest economy.
The Fed’s latest set of projections showed officials now expect GDP to expand by 1.7 per cent this year, with prices forecast to rise by 2.7 per cent. Policymakers also kept the central bank’s main interest rate on hold at the end of a two-day meeting on Wednesday.
Fed chair Jay Powell acknowledged to reporters after the meeting that the president’s plan to hit trading partners and other countries with sweeping tariffs had affected the central bank’s outlook for inflation and the economy.
“Clearly some of it, a good part of it,” is related to the impact of Trump’s tariffs, Powell said. He also said that the Fed did “not need to be in a hurry” to shift rates giving “unusually elevated” uncertainty.
Progress on inflation was “probably delayed for the time being”, Powell said.
The Fed also announced that it was slowing down the pace of its quantitative tightening programme, lowering the amount of US Treasury debt it allows to roll off its balance sheet each month from $25bn to $5bn beginning in April.
US equities hit their highs of the day following the Fed decision, with the S&P 500 up more than 1 per cent and the tech-heavy Nasdaq Composite jumping nearly 2 per cent.
US government debt also rallied, pushing the benchmark 10-year Treasury yield down 0.04 percentage points to 4.25 per cent.
