This week’s updated Fed dot plot shows a subtle but telling shift: a slight downgrade in expected growth and an upward revision to inflation forecasts. Most notably, rate cuts for the end of 2025 were marked up, signaling the Fed’s growing unease about tightening further in a weakening environment. But the real message lies between the lines.
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Despite Powell’s public insistence that inflationary spikes may prove “transitory,” the new projections reflect a cautious recalibration. Officials now expect slower GDP growth and stickier inflation than they did in December. That combo—rising prices with sputtering output—is a stagflation setup. Yet, the Fed isn’t ready to sound the alarm. Instead, it’s hoping the data holds steady long enough to avoid choosing between inflation-fighting rate hikes or recession-averting stimulus.

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