Federal Reserve Signals Higher Inflation Risks and Slower Rate Cuts Ahead

Revised projections show increased inflation expectations for 2025, with potential rate hikes on the horizon under Trump’s economic policies.

The Federal Reserve cut interest rates by 25 basis points to a target range of 4.25%-4.50% but indicated a cautious approach moving forward.
Revised inflation forecasts suggest higher-than-expected rates in 2025, with projections for core inflation rising to 2.5%-2.7% compared to earlier estimates of 2.1%-2.3%.
The Fed now anticipates only two rate cuts in 2025, a shift from prior expectations of more aggressive easing, potentially impacting consumer and business credit costs.
Economic strength, combined with anticipated inflationary policies from President-elect Donald Trump, has raised concerns of a 40% chance of rate hikes in 2025, according to some economists.
Markets reacted sharply, with the S&P 500 dropping 3% and the U.S. Dollar Index reaching a two-year high, as investors recalibrated expectations for monetary policy.