In its latest report, Federal Reserve officials generally projected a decline in U.S. economic growth and an increase in inflation. However, one official diverged from the consensus, forecasting GDP growth between 2.4% and 2.5%.
This optimistic forecast stood in contrast to the more cautious outlook shared by other members of the Federal Open Market Committee, none of whom anticipated growth exceeding 2%.
The report, known as the Summary of Economic Projections or “dot plot,” offers quarterly insights into the Federal Reserve’s expectations for the economy. These projections are closely observed by investors and economists for any shifts in perspective.
The recent dot plot indicated a decline in growth forecasts compared to the December predictions, where 13 committee members had anticipated GDP growth exceeding 2%. Some members had expected growth between 2% and 2.3%, with one expecting even higher growth at 2.5%. The anonymity of the dot plot precludes confirmation of whether the optimistic outlook is from the same individual as before.
Overall, the forecasts trended towards slower growth and rising inflation and unemployment. Deutsche Bank noted a shift in perceived risks towards weaker growth and heightened inflation following the Fed’s meeting.
The Fed’s median GDP growth forecast was reduced from 2.1% to 1.7%, described by Federal Reserve Chair Jerome Powell as a “meaningful decline” during a press conference. Despite this, Powell reassured that the economy remains fundamentally strong, attributing the lowered projections to uncertainty rather than underlying economic weakness.
Significant uncertainty arises from President Donald Trump’s fluctuating tariff policies and proposed strict immigration policies, which could potentially initiate a trade war and reduce labor supply. The administration has shown inconsistency in its tariff implementations, targeting major trade partners like China, Mexico, and Canada, leaving investors seeking clarity.
Powell acknowledged the challenge of assessing tariff policy impacts, stating that while the specifics are unclear, tariffs generally lower growth and initially raise inflation.
Investor forecasts were also aligned with the Fed’s general consensus, except for the lone optimistic official. Vanguard, for instance, reduced its 2025 GDP forecast due to increased policy uncertainty and adjusted its core inflation expectations upwards.
Amid this uncertainty, the Fed has opted to pause interest rate adjustments this year. Powell emphasized that the stable economic fundamentals allow for this cautious approach while awaiting more definitive information on future policy directions from the White House. This situation is shifting the focus from monetary to fiscal policy, as noted by William Blair equity researcher Richard De Chazal.
This information was initially reported on Fortune.com.
