Federal Reserve Chair Jerome Powell signaled two potential interest rate cuts this year, adopting a dovish stance that surprised investors concerned about stagflation.
The Fed’s base case assumes tariff-induced inflation will be “transitory” with only a short-term impact on prices, projecting inflation to reach 2.7% by year-end before returning to its 2% target by 2027.
However, experts warn this outlook may be unrealistic given Trump administration trade policy uncertainties. Despite the Fed’s cautious projections, markets are pricing in three cuts instead of two, though analysts advise investors to focus on fundamentals like earnings growth rather than Fed forecasts given the highly uncertain economic environment.