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Inflation has been one of the top concerns for the US economy in 2024. And it looks like fears over sticky prices will continue in 2025.

“We expect a gradual deceleration from where we are, but to levels that are still uncomfortably high for the Fed,” Deutsche Bank chief economist Matthew Luzzetti told Yahoo Finance in an interview.

So far this year, inflation has moderated but remains stubbornly above the Federal Reserve’s 2% target on an annual basis, pressured by hotter-than-expected readings on monthly “core” price increases, which strip out volatile food and energy costs.

In November, the core Personal Consumption Expenditures (PCE) index and the core Consumer Price Index (CPI), both closely tracked by the central bank, rose 2.8% and 3.3%, respectively, over the prior-year period.

“Inflation is primarily going to be driven by the services side of the economy,” Luzzetti said, calling out core services like healthcare, insurance, and even airfares. “Shelter inflation is also still high, and although it’ll come down over the next year, it’s likely that it could remain somewhat elevated.”

According to updated economic forecasts from the Fed’s Summary of Economic Projections (SEP), the central bank sees core inflation hitting 2.5% next year, higher than its previous projection of 2.2%, before cooling to 2.2% in 2026 and 2.0% in 2027.

This largely aligns with Wall Street’s current projections. Out of the 58 economists surveyed by Bloomberg, the majority see core PCE moderating to 2.5% in 2025. Still, they do expect less of a deceleration in 2026, with the bulk of economists anticipating a higher 2.4% reading compared to the Fed.

“The risks are certainly tilted in the direction of higher inflation,” Nancy Vanden Houten, lead US economist at Oxford Economics, told Yahoo Finance. “A lot of the risk comes from the possibility of certain policies being implemented under the Trump administration on tariffs and on immigration.”

President-elect Donald Trump’s proposed policies, such as high tariffs on imported goods, tax cuts for corporations, and curbs on immigration, are considered potentially inflationary by economists.

Those policies could further complicate the Federal Reserve’s path forward for interest rates, with the central bank now seeing just two rate cuts next year.