Fed lowers US growth projection due to Trump’s initiatives
As a result of Trump’s initiatives, the Federal Reserve has reduced its GDP prediction for the United States.Due to the influence that President Trump’s policies have had on the economic outlook, the Federal Reserve has reduced its growth prediction for the United States downward. This adjustment was attributed to the current state of the economy. The Federal Reserve has reduced its growth estimates for the United States economy downward while simultaneously upping its inflation expectations. This move highlights concerns that tariffs imposed by Donald Trump may have a negative impact on the economy that is the largest in the world.
The most recent projections made by the Federal Reserve stated that experts estimate a growth rate of 2.7 percent in inflation for the current year, in addition to a growth rate of 1.7 percent in gross domestic product for the current year. Following the completion of a meeting that lasted for two days, policymakers made the decision on Wednesday to keep the primary interest rate of the central bank at the same level as it is currently. Subsequent to the meeting, the Chair of the Federal Reserve, Jay Powell, acknowledged to the press that President Trump’s demands for significant tariffs on trading partners of the United States had influenced the perspective of the central bank on inflation and economic conditions.
Powell suggested that a sizeable percentage of the predicament can be attributed to the consequences of the tariffs imposed by the president. He pointed out that measures of this nature often lead to a decrease in economic growth and an increase in inflation when implemented. In addition, he noted that the Federal Reserve did not “need to rush” into raising interest rates because of the “unusually high” amount of uncertainty that was present. Powell seems to be of the opinion that any further increases in inflation are likely to be delayed for the foreseeable future. The Federal Reserve has been working hard to bring inflation down to its goal level of 2 percent while simultaneously tackling the most acute bout of price pressures that has been witnessed in decades.
In a recent communication that he posted on his Truth Social platform, President Trump reaffirmed his demand that the central bank reduce the interest rates that are charged on loans in preparation for the additional tariffs that he plans to unveil the following month. In light of the fact that the impact of tariffs imposed by the United States on the economy is beginning to progressively lessen, the president remarked that a reduction in interest rates would be of substantial benefit to the Federal Reserve. “Act in accordance with ethical principles.”
The Federal Reserve has signaled that it will slow down the implementation of its quantitative tightening policy, which will result in a reduction of the monthly roll-off of US Treasury notes from $25 billion to $5 billion beginning in April. In the wake of the decision made by the Federal Reserve, the S&P 500 index rose by 1.1 percent, and the Nasdaq Composite, which is centered on technology, rose by 1.4 percent. This caused the U.S. equity market to reach unprecedented levels on a daily basis.
An increase in the debt held by the United States government led to a decrease of 0.04 percentage points in the yield on the benchmark 10-year Treasury note, which is currently at 4.25 percent. Ed Al-Hussainy, an investment analyst at Columbia Threadneedle Investments, made the following observation: “The positive aspect for risk is that the Fed anticipates elevated inflation, but not to a degree that would alter their trajectory of rate reductions.” In December, members of the Federal Open Market Committee, which is the policy-making body of the central bank, anticipated a growth rate of 2.1 percent for 2025 and predicted that the key personal consumption expenditures inflation measure would end the year at 2.5 percent. The most recent projections indicate a significant change from those predictions.
It was at a crucial juncture for the economy of the United States that the meeting took place, as it coincided with President Trump’s vow to make major cutbacks in federal expenditures and extensive tax reductions. It is because of his implementation of large new tariffs on imports that a global trade battle has been sparked. Consumers and businesses in the United States are voicing concerns about the taxes, which have contributed to a decrease in demand and increased pricing pressures, according to recent surveys. These concerns have been expressed by consumers and businesses.
The most recent projections from the Federal Reserve indicate that the economy is suffering stagflation, which is defined by decreased growth amid growing inflation, as stated by Torsten Slok, chief economist of Apollo, an investment organization. There are many different challenges that the Federal Reserve must face when dealing with stagflation. Is it more appropriate for policymakers to prioritize growth, which would imply a drop in interest rates, or should they respond to growing inflation, which would make it necessary to raise interest rates?
A statement issued by the Federal Open Market Committee (FOMC) on Wednesday stated that “uncertainty around the economic outlook has increased.” This statement was issued in response to the decision made by US rate-setters to maintain the target range for the benchmark federal funds rate at 4.25 percent to 4.5 percent. The most recent dot plot estimates indicate that officials from the Federal Reserve anticipate one or two additional quarter-point rate reductions this year, which is consistent with their outlook from December. This will come after a cut of one percentage point in 2024. A single member of the Federal Open Market Committee held the position that there would be no reductions in interest rates this year; but, as of right now, four members of the committee are of the opinion that there will be no future reductions in interest rates.
By the end of the year 2025, market participants estimate a fall in interest rates of between two and three quarter points. Christopher Waller, the Governor of the Federal Reserve, was opposed to the decision to slow down the rate of quantitative tightening. He said that the continuous reduction of $25 billion per month is still appropriate. All of the voting members of the Federal Open Market Committee (FOMC) gave their absolute approval to the decision to keep interest rates at their current levels.
