U.S. Federal Reserve Chair Jerome Powell speaks during a conference marking the 75th anniversary of the International Finance Division of the Federal Reserve Board in Washington, D.C., on June 2, 2025.
Andrew Caballero-Reynolds | AFP | Getty Images
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 said at their June meeting that they 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 the 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 in the post-meeting news conference that the recent uptick in inflation expectations could be tied to tariffs.
“Everyone that I know is forecasting a meaningful increase in inflation in coming months from tariffs because someone has to pay for the tariffs,” Powell said. “It will be someone in that chain that I mentioned, between the manufacturer, the exporter, the importer, the retailer, ultimately somebody putting it into a good of some kind or just the consumer buying it.”
“All through that chain, people will be trying not to be the ones who can take up the cost but ultimately, the cost of the tariff has to be paid. And some of it will fall on the end consumer,” he said.
Fed officials have been reluctant to lower rates, worrying that Trump’s tariffs could cause inflation to reaccelerate 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:
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