Dowell spent this season on-loan at Forest from Everton.
“The Championship is tough and he did start really well. I do not know what happened," Karanka told the Nottingham Post.
“I don't know if he started to feel pressure from other players who had signed, but he lost his confidence. He looked a different player.
“But I am still sure that he will be an amazing player in the future, because he has everything. He is powerful, he has technique, he is a good kid.
“He did really well. He needs to take another step forward now."