Federal Reserve projects inflation to increase 43% by end of 2025 as July rate cut debates continue
- Alexangel Ventura
- Jul 12
- 3 min read
The Federal Reserve, as rate cut debates continue into this week, projected inflation, the rate at which prices rise, will increase from roughly 2.1% as of June 2025 to 3% by the end of 2025.
The Fed announced this projection last month as it aimed to cite its rationale for holding rates in July and maintain Chair Powell's "wait and see" policy in regard to interest rates. This increase from 2.1% to 3% that they are projecting is a nearly 43% increase of the inflation rate as a whole, rivaling the post-COVID inflation rise in late 2021.
The Fed made these projections for a number of reasons, however the most attributable cause to this estimate is the waging of tariff warfare by the incumbent Trump administration. As of Saturday 7/12, President Trump sent dozens of tariff letters to overseas trading partners like Brazil, Mexico, and members of the European Union (30% for the latter two).
Fed Chair Jerome Powell has been a strong opposer to the president's tariff policies despite him acknowledging himself as a fiscal conservative. In his recent speech at the Economic Club of New York in July 2025, Powell warned, "The tariffs imposed on imports are contributing to higher prices for consumers, and we anticipate that inflation will rise above our 2% target over the coming year if these policies continue."
In addition, many Fed officials close to Powell have shared his very same opposition to the tariffs as a means of disrupting the economy. Fed Governor Lael Brainard in an interview with Bloomberg in June argued, "Trade tensions and tariffs have disrupted supply chains and pushed up input costs for many industries, which is feeding through into broader inflationary pressures."
However, tariffs were not the only reason for the Fed' ambitious prediction for inflation in 2025. Supply chain disruptions have also posed a heavy risk to price growth as due to tariffs and other trade barriers, goods have become far less available due to higher levies and longer transportation times. This would lead to shortages, in turn pushing prices up and subsequently inflation.
Lastly, the Fed argued that fiscal policy in the federal government would contribute to steeper inflation growth, in particular tax cuts. With the passage of the "Big, Beautiful Bill," the deficit would increase by $3.3 trillion over the next 10 years, according to the Congressional Budget Office. In addition, further spending increases from defense and interest on debt payments will further exacerbate the deficit, urging the government to borrow more and print more money, contributing to inflation; also, these would boost demand in the economy, which if it grows faster than supply could contribute to further inflation increases.
Mohamad El-Erian, Economist and Financial Analyst, said in a statement to the Financial Times, "The combination of tariffs, fiscal stimulus, and uncertainty is creating a perfect storm that could push inflation well beyond comfortable levels, forcing the Fed into a difficult balancing act." This essentially summarizes why the Federal Reserve increased its inflation estimate.
With the release of this estimate a few weeks ago, discussions about a July rate cut have ceased, although a strong opposition remained quite resilient, including rate cut proponent Christopher Waller who on Friday called his action "...not political."
Nevertheless, most analysts are predicting that the Fed will hold rates this month, and that rate cuts will likely take place by the end of the year leading into next year.
