By AP Economics Writer Christopher Al Gerber
WASHINGTON (AP) — Federal Reserve officials expect inflation to worsen in the coming months, but are forecasting two interest rate cuts by the end of this year.
The Fed said the economy is expanding at a “solid pace” with key rates changed for the fourth consecutive meeting on Wednesday. Typically, changes in the Fed rates, but not always, affect the borrowing costs for mortgages, car loans, credit cards, and business loans.
The central bank has also released its latest quarterly forecasts on the economy and interest rates. Before President Donald Trump announced the sweeping fees on April 2, he expects significantly weaker growth, higher inflation and slightly higher unemployment by the end of the year than forecast in March. Most of these roles will then cut interest rates once in 2026, starting with the two cuts projected on March 9th.
Fed officials are following their preference scale, rising to 3% by the end of this year, and seeing inflation from 2.1% in April. We also expect the unemployment rate to rise from 4.2% to 4.5%. Growth is expected to slow from 2.5% last year to just 1.4% this year.
Despite the pessimistic outlook, Fed Chairman Jerome Powell and other officials have emphasized that they are throttling key rate changes due to the uncertainty surrounding the impact of tariffs and economic outlook. Several Fed policymakers have expressed special concern that their duties can raise prices, creating a surge in inflation years after the worst inflationary spike in 40 years. Many economists say that without a higher import tax, the Fed will likely lower that tax rate even further.
But so far, inflation has cooled to just 2.1% this April, essentially returning to the central bank’s 2% target. Core inflation, which excludes volatile food and energy categories, remains rising at 2.5%.
Trump has pointed to mild inflation numbers, arguing that the Fed should lower borrowing costs and repeatedly criticised Powell for not doing so. On Wednesday, he called Powell “silly” and accused him of being “political” for not cutting interest rates.
Trump previously argued that interest rate cuts would boost the economy. Now his focus has shifted to federal borrowing costs. This has been shot high since the pandemic and has been running for over $1 trillion per year.
To drive the Fed to cut interest rates, it usually raises alarms among economists to save the government on interest payments. This is because it threatens the Fed’s council duties to focus on stable prices and maximum employment.
One of Trump’s complaints is that the Fed has not cut interest rates on Tuesday, even if other central banks, including Europe, Canada and the UK, cut borrowing costs.
However, as US tariffs weaken the economy, the European Central Bank, Bank of Canada and the Bank of England have lowered their prices this year as well. So far, the US economy has been pretty solid and unemployment has been low.
The Bank of England has lowered that rate twice this year, but is expected to remain unchanged at 4.25% when it meets Thursday.
Original issue: June 18th, 2025, 11:10am EDT
