Federal Reserve cuts US economic growth outlook amid Trump tariffs

Officials at the US Federal Reserve cut their US economic growth forecasts and raised projections for price growth as they kept interest rates on hold.

“Uncertainty around the economic outlook has increased,” the central bank said in a statement, as Donald Trump’s attempt to overhaul the global economy with sweeping tariffs sparks concern over inflation and growth.

Policymakers at the Fed expect inflation to increase by an average rate of 2.7% this year, according to projections released on Wednesday, up from a previous estimate of 2.5%.

They expect US gross domestic product (GDP) – a broad measure of economic health – to rise by 1.7% this year, down from an estimate of 2.1% in December. Officials also revised down their projections for GDP growth in 2026 and 2027, to 1.8%.

Uncertainty is “remarkably high”, the Fed chair, Jerome Powell, cautioned, as the Trump administration attempts to engineer radical economic change. “I don’t know anyone who has a lot of confidence in their forecast.”

Some of the increase in the Fed’s inflation expectations was “clearly” due to tariffs, Powell said.

Fed officials maintained the benchmark interest from 4.25% to 4.5% following their latest two-day policy meeting. A closely watched “dot plot”, which shows policymakers’ predictions for the trajectory of rates, indicated that they might cut them twice over the course of this year.

The Bank of England is also expected on Thursday to announce that it will keep UK rates on hold at 4.5%.

Trump, who returned to the White House in January after promising to rapidly bring down prices for millions of Americans, has roiled businesses and investors in the US and across the world with the erratic rollout of an aggressive tariff strategy.

Many economists warn the Trump administration’s plans to impose or increase US tariffs on goods from overseas risk raising prices further.

The president has insisted, however, that hitting trading partners and economic rivals with such duties will help him to rebalance the global stage to America’s advantage – and raise funds for the US federal government.

“Surveys of households and businesses point to heightened uncertainty about the economic outlook,” Powell said at a news conference. “It remains [to be] seen how these developments affect future spending and investment.”

The Fed is targeting a 2% inflation rate. While price growth has fallen dramatically from its peak at 9.1% – the highest level in a generation – three years ago, it has yet to fall below the central bank’s target.

Wall Street rose slightly after the latest Fed announcement, with the benchmark S&P 500 closing up 1.1%. The technology-focused Nasdaq Composite increased 1.4%.