The projections underscore the tight spot the Fed may find itself in this year: Higher inflation typically would lead the Fed to keep its key rate elevated, or even raise rates. On the other hand, slower growth and higher unemployment would often cause the Fed to cut rates to spur more borrowing and spending and lift the economy.

Inflation, as measured by the personal consumption expenditures price index, will reach 2.7% this year, up from 2.5% previously. The core PCE, the Fed’s favorite measure, is seen at 2.8% this year, also up from 2.5% in its December projection.

The Federal Reserve kept its forecast for two rate cuts this year amid Trump's tariffs, which are expected to push up inflation and slow the economy