Federal Reserve officials have revised their inflation expectations for 2025 sharply higher while risks to the inflationary outlook shifted from “balanced” to the “upside” and markets have lowered their projections for the pace of future rate cuts amid fears that price pressures will stay higher for longer.
In the latest summary of economic projections, released on Dec. 18, Fed officials now see their two preferred inflation gauges—the personal consumption expenditures (PCE) and core PCE measures—moving sharply higher next year compared to forecasts several months back. They now expect PCE inflation of 2.5 percent in 2025, up from 2.1 percent in September’s summary of economic projections. Officials also expect core PCE inflation, which strips out the volatile categories of food and energy, to rise to 2.5 percent next year, compared to the 2.2 percent they projected two months ago.
