Fed Lowers Growth Forecast, Raises Inflation Prediction... Growing Stagflation Concerns [Fed Watch]

US GDP growth rate this year 2.1→1.7%

Core inflation 2.5→2.8%

Suggests increasing possibility of stagflation

FOMC members expecting no rate cuts this year

Increased from 1 to 4 members... inflation risks perceived more seriously than before

There are signs of growing concerns about stagflation within the Federal Reserve (Fed). This comes as they lower economic growth forecasts while raising inflation projections.

In the Summary of Economic Projections (SEP) released through the Federal Open Market Committee (FOMC) on the 19th (local time), the Fed downgraded its 2025 gross domestic product (GDP) growth forecast from 2.1% to 1.7%. Meanwhile, they raised their core inflation projection (excluding food and energy prices) to 2.8% annually, up from the previous estimate (2.5%).

This suggests an increasing possibility of stagflation, where economic slowdown and price increases occur simultaneously. In its statement, the FOMC noted that "uncertainty about the economic outlook has increased" and that they are "carefully monitoring risk factors for both maximum employment and price stability goals." This is interpreted as reflecting concerns about price increases and consumption contraction as US President Donald Trump implements strong tariff policies against major trading partners.

Fed Chairman Jerome Powell warned during the press conference following the FOMC meeting that "inflation has recently begun to rise," adding that "this is partly due to the impact of tariffs, and there is a possibility that the slowdown in inflation could be delayed throughout this year." He also added, "While overall economic indicators remain solid, uncertainty is growing rapidly in household and business surveys, and there are significant concerns about economic slowdown."

The Fed maintained its previous position that it is likely to implement two rate cuts this year. According to the 'dot plot' showing FOMC members' interest rate projections, the majority of the 19 members (regardless of voting rights) predicted the median benchmark interest rate at the end of this year to be 3.9% annually. This implies a target interest rate range of 3.75-4% annually.

At this meeting, four members suggested the possibility of no rate cuts at all this year. This contrasts with the January meeting, when only one member forecasted no change in rates. This indicates that the Fed is taking inflation risk more seriously and that there is a greater possibility of more conservative interest rate policy management. The Fed stated that as economic uncertainty increases, it will continue prudent monetary policy while closely reviewing future economic indicators.

New York=Park Shin-young, Correspondent nyusos@hankyung.com