Federal Reserve’s Outlook: Interest rates, inflation, and growth

The Federal Reserve recently decided to keep interest rates unchanged, signaling a cautious approach to the economy’s future. Their latest report, called the Summary of Economic Projections, paints a picture of slower growth and higher inflation ahead, a situation some call stagflation. Yahoo Finance’s Allie Canal explained the details, focusing on the Fed’s “dot plot,” a chart showing where officials think rates might go.

The Fed expects inflation to rise to 3.1% in 2025, up from its earlier guess of 2.8%. They don’t see it hitting their 2% target until 2027. Economic growth is also expected to slow, with GDP projected at 1.4% for 2025, down from 1.7%. Unemployment is likely to tick up slightly to 4.5% next year, compared to 4.2% now. These numbers suggest a tricky balance: inflation staying high while growth weakens.

Despite these concerns, the Fed still plans for two rate cuts in 2025, though opinions among officials vary. Some predict no cuts, while others expect up to three. The uncertainty comes from factors like new tariffs and policy changes in Washington, which could shake up the economy. Fed Chair Jerome Powell emphasized that they’re watching the data closely to make the right moves.

For everyday people, this means borrowing costs, like for mortgages or credit cards, will likely stay high for now. Savers, however, can still earn good returns on things like savings accounts. The Fed’s cautious stance shows they’re trying to steady the economy without rushing into changes.