Federal Reserve May Lower 2025 GDP Growth Forecast, Raise Inflation Expectations

Pictet, a prominent financial institution, has suggested that the Federal Reserve may revise its economic projections in the near future. According to their analysis, the Fed is likely to lower its GDP growth forecast for 2025 while simultaneously raising its inflation forecast. This adjustment reflects the increased uncertainty and potential economic headwinds that the U.S. economy may face.

Frederik Ducrozet, the Head of Macroeconomic Research at BNP Paribas Wealth Management, echoed similar sentiments in a recent report. He anticipates that the Federal Reserve will maintain its current interest rate policy during its upcoming meeting. Federal Reserve Chairman Jerome Powell is expected to emphasize that there is no immediate urgency to reduce interest rates. This stance aligns with the Fed's cautious approach to monetary policy, given the current economic landscape.

The Fed's revised projections are expected to acknowledge the growing uncertainty in the economic outlook. This includes potential risks to economic growth and the possibility of higher inflationary pressures. The dot plot, a tool used by the Fed to communicate its interest rate expectations, is anticipated to show no change in the median expectation of two rate cuts for the year, with a bias towards one rate cut. This suggests that the Fed is prepared to act if economic conditions warrant, but is not rushing to make significant policy changes at this time.

The expected rate cut in June is seen as a response to accelerating inflation, which could necessitate a more accommodative monetary policy. However, the Fed is not expected to implement further rate cuts in 2025, indicating a cautious approach to managing inflation and economic growth. This balanced strategy aims to support the economy while keeping inflation in check, reflecting the Fed's commitment to maintaining economic stability.