The central bank held the federal funds target at 4.25 to 4.50 percent, its level since the December rate cut. But the accompanying economic projections revealed rising concern that inflation is not receding fast enough—and that rates may need to stay elevated to keep it in check.
Officials now forecast that the Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) index, will climb to 3.0 percent by the end of 2025. Core PCE inflation, which excludes food and energy, is expected to reach 3.1 percent. Both represent notable upward revisions from the March forecast, which anticipated 2.7 percent and 2.8 percent respectively.
“We expect a meaningful amount of inflation to arrive in the coming months,” Fed chairman Jerome Powell said. “We have to take that into account.”
This came as a surprise to many Fed watchers because recent inflation data has come in softer than expected, with prices holding steady or rising only at a slow rate. The annualized quarterly pace of the PCE inflation is 1.5 percent, below the Fed’s two percent inflation target, and core PCE inflation is two percent, according to the Federal Reserve Bank of Cleveland.
