As was widely expected, the U.S. Federal Reserve has stood pat on interest rates. However, the American central bank warned of slowing growth and rising inflation ahead.
The Fed lowered its economic outlook as part of its latest projections, saying it expects the U.S. economy to grow at 1.7% this year, down from a previous forecast of 2.1% growth.
At the same time, the central bank raised its inflation outlook, saying core consumer prices are likely to rise at a 2.8% annual pace this year, up from a previous estimate of 2.5%.
Economists were quick to use the word “stagflation” to describe the scenario outlined by the U.S. Federal Reserve.
Stagflation is a situation where inflation rises even though economic growth slows. It is widely viewed by economists as a worst-case scenario.
In its statement accompanying the interest rate decision, the Fed said that “uncertainty around the economic outlook has increased.”
Fears of an economic slowdown and inflation rising have grown dramatically as U.S. President Donald Trump pursues aggressive import tariffs on key U.S. trading partners.
However, for now, the Fed still expects to make two interest rate cuts this year, although it cautioned that developments could change quickly in coming months.
For now, the U.S. central bank kept its benchmark Fed Funds interest rate unchanged in a range of 4.25% to 4.50%.
The central bank is next scheduled to decide on interest rates May 7.
