The Federal Reserve sees inflation rising again to top 3% this year amid the uncertainty around President Donald Trump’s trade policies and intensifying geopolitical risk.
Federal Open Market Committee participants expect the core personal consumption expenditures price index, which excludes food and energy, to increase at a 3.1% rate in 2025, higher than their prior forecast of 2.8% in March.
The PCE price index was at 2.1% in April, matching its lowest level since February 2021. Excluding food and energy, core PCE stood at 2.5%. The latter is a gauge Fed officials believe to be a better measure of longer-term trends.
Central bank officials also see further slowing in economic growth, projecting gross domestic project expanding just 1.4% this year. In March, they expected a 1.7% pace in GDP growth.
Fed Chair Jerome Powell said the recent uptick in inflation expectations could be tied to tariffs.
“Near-term measures of inflation expectations have moved up over recent months, as reflected in both market and survey based measures. Respondents to surveys of consumers, businesses and professional forecasters point to tariffs as the driving factor,” Powell said.
Fed officials have been reluctant to lower rates, worrying that Trump’s tariffs could cause inflation to re-accelerate in the coming months. The conflict between Israel and Iran adds another wild card to the policy mix, as high oil prices could prevent the Fed from easing policy.
Still, the so-called dot-plot — which indicates individual members’ expectations for rates — showed officials see their benchmark lending rate falling to 3.9% by the end of 2025. That’s equivalent to a target range of 3.75% to 4%, pointing to two reductions later this year.
Seven of the 19 participants indicated they wanted no cuts this year, up from four in March. Participants also see fewer cuts in 2026 and 2027.
Here are the Fed’s latest targets from 19 FOMC members, both voters and nonvoters:
