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Citing the growing risk of greater inflation and increasing unemployment, the May 2025 FOMC minutes revealed the Federal Reserve's worries about the U.S. economic outlook. Fed officials acknowledged the possibility of "difficult trade-offs" due to persistent inflation and a potential economic downturn. Projections by the staff indicated reduced GDP expansion for 2025 and 2026 as well as a predicted "significant" decline in the labor market.
Chairman Jerome Powell emphasized the challenge in gauging the full impact of these tariffs on inflation expectations. Trade policies—particularly tariffs—were found to be major contributors to inflationary pressures and slower growth, as well as to affect economic activity. In light of the growing ambiguity, the Committee approved a prudent, wait-and-see approach to financial policy.
The FOMC's decision to keep the federal funds rate between 4.25% and 4.50% mirrored their conservative posture amid these economic difficulties. The minutes noted no immediate plans for interest rate cuts and accepted that policy uncertainty made achieving the dual goals of full employment and low inflation challenging. Market reaction to the minutes was subdued as they mostly confirmed the Fed's current hawkish stance and fears about trade-related inflation risk.
