Key Points

  • The Conference Board said U.S. inflation is likely to slow to the Federal Reserve's 2% target by mid-2026, unless tariffs and other policy changes implemented by the Trump administration lead to rising price pressures.
  • "Uncertainty over current government policies casts a large shadow over the economic outlook," the organization said in its U.S. economic forecast released Wednesday. "After a year of surprisingly strong growth, a range of proposed policies could weigh on growth and push inflation gradually higher through the year, prompting the Fed to adopt a more patient policy stance."
  • The Conference Board expects policymakers to cut rates by 25 basis points each at their July, September, and December meetings this year, before holding the federal funds rate in a "neutral rate" range of 3% to 3.25% in the second quarter of 2026. The neutral rate is the level that neither stimulates nor restrains economic growth.

In-Depth Analysis

Government data released this week showed the Fed's efforts to bring inflation down to 2% have stalled.

Data released by the U.S. Labor Department on Thursday showed the producer price index for final demand, which measures supplier charges, rose 0.4% month over month in January, with a year-over-year increase of 3.5%, matching the annual gain in December.

Additionally, according to a government report released Wednesday, consumer prices rose 3% year over year last month, higher than expected and marking the largest increase since June. The Bureau of Labor Statistics reported that housing costs rose 0.4% month over month in January, accounting for 30% of the increase in the consumer price index (CPI).

The Conference Board expects the U.S. economy to grow 2.3% this year, with growth slowing to 1.8% next year.

However, the organization warned that tariffs and deportation policies proposed by the Trump administration could begin to weigh on economic growth in the second half of this year.

Yelena Shulyatyeva, senior U.S. economist at the Conference Board, said during a webcast Wednesday that a 10% tariff on Chinese imports and 25% import tariffs on goods from Canada and Mexico would reduce gross domestic product (GDP) growth by 1 percentage point within a year while raising inflation by 0.6 percentage points.

"The monetary policy rate is likely to remain unchanged in the coming months, with the Fed staying patient," she noted.

Fed Chair Jerome Powell reiterated during testimony before the House Financial Services Committee on Wednesday that policymakers are committed to bringing inflation down to 2%, while downplaying the apparent setback shown by last month's rise in CPI. "We don't get excited about one or two good prints, and we don't get depressed about one or two bad prints," he said.

The Fed paused its monetary easing last month after cutting its key rate by a full percentage point cumulatively between September and December, citing persistent inflation. The benchmark rate currently stands in a range of 4.25% to 4.5%.

Powell said policymakers will adjust borrowing costs based on the latest data, while pointing to uncertainty over the economic impact of planned changes in tariffs, immigration, regulation, and fiscal policy.

In fact, the Conference Board said changes in federal spending could prompt policymakers to cut key rates sooner than expected. "Large-scale government spending cuts would weigh on economic growth and could prompt the Fed to accelerate the pace of rate cuts."

The organization expects business investment to decline over the full year 2025.

"Some businesses may choose to invest in anticipation of deregulation, corporate tax cuts, and the new administration's greater focus on artificial intelligence, cryptocurrency, and fossil fuel production," the Conference Board said. "Other industries may continue to delay investment until there is greater clarity on trade, government spending, and immigration policy."