Higher inflation

Federal Reserve officials pencil in higher inflation next year following Trump's win

From CNN's Elisabeth Buchwald

The Federal Reserve is banking on higher-than-anticipated inflation after President-elect Donald Trump takes office.

Federal Reserve officials had thought their preferred inflation gauge, the Personal Consumption Expenditures price index, would be 2.1% by the end of 2025 at September’s monetary policy meeting, according to the median forecast included in the quarterly Summary of Economic Projections.

But at this month’s meeting, officials raised their forecast and are now predicting 2.5% inflation by year’s end next year, according to new projections released Wednesday.

What changed from September to December that would cause officials to foresee higher inflation? Trump won a second term.

Trump’s victory carries significant implications for the trajectory of inflation and the overall economy. For example, many economists have warned that some policies Trump promised to put in place, including broad-based tariffs and mass deportations of illegal migrants, could push prices Americans pay for goods and services up significantly.

Fed officials may have taken that into account when they made new projections on inflation’s path next year, though it’s impossible to say for certain whether that alone drove them to believe inflation would be higher.

In recent months, inflation has heated up, moving further away from the Fed’s target. Many officials have also expressed concerns recently that inflation may prove to be stickier than previously thought to be.