We have updated the FRB-US baseline forecast, along with the projections from all other models. Given the current highly volatile environment, please note that the baseline may be subject to further revisions before the June FOMC meeting.
As discussed during our meetings in London, regardless of developments from the White House or Congress, we continue to expect the Federal Reserve to remain “on hold” and to refrain from committing in either direction with respect to its dual mandate.
Please find below the latest FRB-US model run, along with a comparative table of forecasts across all our models.
Updated baseline
We have updated the baseline. We have revised our baseline scenario following constructing comments. Compared to the previous run, we now assume that: (i) the FF rate will not change in Q2:2025, (ii) the unemployment rate is marginally lower this quarter, (iii) core PCE price inflation is lower in Q2:2025, (iv) the level and slope of potential output are lower, given the effect of tariffs. The outcomes of the revised baseline scenario are illustrated in Figure 1. As usual, the red dashed line denotes the updated forecasts generated by FRB-US, while the blue line represent the March SEP.
Bottom Line: Risks to both sides of the Federal Reserve’s dual mandate remain evident.
Under the revised baseline scenario (depicted by the red dashed lines), economic growth is projected to remain subdued throughout 2025. The unemployment rate is anticipated to peak at 4.5 percent before gradually declining. Core inflation is expected to reach 3.2 percent by the end of 2025 and, while it moderates thereafter, it is projected to remain above the Federal Reserve’s target.
On balance, the trajectory of the federal funds rate remains broadly consistent with the projections presented in the March Summary of Economic Projections (SEP), with the exception of the divergence noted in 2027, which is largely discounted in this analysis.
(Note: For readers questioning the comparatively more accommodative federal funds rate in 2027 relative to the March SEP—despite elevated core inflation—this is attributable to a more negative output gap in the model compared to that assumed in the SEP.)
Figure 1. Update FRB-US forecast – real-side variables.
Note: Real GDP growth and core inflation are expressed on a year-over-year basis. Core inflation refers to core PCE price inflation. The red-dashed lines are the model forecast, while the blue dots are the latest SEP. This forecast has been updated as outlined in the text.
Other models forecasts
Figure 2. All models’ forecasts for core, headline CPI and PCE.
Please, find below all models’ forecasts for core, headline CPI and PCE. The colors in the table indicates the left-hand-side variable. The numbers in the table can be found here. Given the volatile environment, we will update these models more frequently. Please, get in touch in case you need more details.
