According to reports from Pool/Getty Images, Douglas Sacha/Getty Images, and Abanti Chowdhury/BI, the latest economic projections from the Federal Reserve suggest the possibility of stagflation. The Fed has adjusted its growth expectations downward and inflation expectations upward for 2025. Federal Reserve Chair Jerome Powell stated during a press conference that uncertainty surrounds the new policies of the president.

While the Fed's interest rate decision did not cause much reaction on Wall Street, its economic projections point to a concerning economic outlook that has been causing concern among investors lately. The central bank maintained its benchmark rate at 4.25% to 4.50%, as anticipated by the market. However, the updated economic forecasts paint a more alarming picture.

The Fed now anticipates lower economic growth and higher inflation for 2025, sparking fears of stagflation, a rare economic scenario. According to the Summary of Economic Projections report, the real GDP growth forecast for this year has been lowered to 1.7% from the previous estimate of 2.1%. In addition, growth expectations for 2026 and 2027 have also been revised downward, with projected real GDP increases of 1.8% in both years.

Moreover, the forecast for personal consumption expenditures inflation, the Fed's preferred measure of inflation, shows an expected rise to 2.7% this year, up from the previous projection of 2.5%. Median inflation projections for 2026 have also been adjusted upward, with Fed officials now foreseeing a 2.2% increase in prices next year, compared to the earlier estimate of 2.1%.

Concerns about the potential emergence of stagflation are rising among investors, with around 71% of fund managers expressing their expectation of stagflation in the global economy within the next 12 months, according to a Bank of America survey. Analysts like Jeffrey Roach, the chief economist at LPL Financial, and Whitney Watson, the co-chief investment officer of fixed-income and liquidity solutions at Goldman Sachs Asset Management, have also highlighted the precarious economic situation and the possibility of stagflation in their assessments following the Federal Reserve meeting.