On Wednesday, May 28th, the minutes of the Federal Reserve’s meeting in early May were released, indicating officials’ concerns that a significant increase in tariffs could raise prices and exacerbate inflation pressures.
The timing of the Fed meeting minutes coincided with President Trump’s announcement of higher tariffs on most U.S. trading partners, followed by a suspension of higher tariffs on some countries, excluding China.
The minutes recorded officials’ digestion of these initial policies in written form. They showed that officials continued to worry about the uncertainty surrounding fiscal and trade policies, ultimately deciding that keeping interest rates unchanged was the best course of action.
Officials at the meeting generally believed that the economic outlook faced higher uncertainties than before, and the Fed needed to be cautious in dealing with rate cuts. They may wait until the impact of the Trump administration’s tariff policies becomes clearer before taking action.
According to the minutes, almost all Fed officials expressed concerns about tariffs potentially elevating inflation in the long run, and indicated that the Fed might have to make “difficult trade-offs” between fighting inflation and maintaining employment.
“The participants agreed that the risks of rising inflation and unemployment have increased. Almost all participants commented on the risk of inflation potentially lasting longer than expected,” the minutes stated.
“The participants noted that if inflation proves to be more persistent while economic growth and employment prospects weaken, the FOMC may face difficult trade-offs,” the minutes added.
Despite worries among Fed officials about inflation trends and the volatility of trade policies, they still believed that the U.S. economy was growing steadily, the labor market was fundamentally balanced, but the risk of economic growth slowing down was increasing, with consumers continuing to spend.
Since the Fed’s meeting in early May, President Trump agreed to reduce tariffs on China from 145% to 30%. The easing of tensions in U.S.-China relations has alleviated concerns about a rapid downturn in the U.S. economy and forced the Fed to consider rate cuts to support a weakening labor market, appeasing investors. On Tuesday, the market further rebounded following the easing news from Europe and the U.S.
According to investors in the interest rate futures market, it is expected that the Fed will maintain stable rates until the meeting in September (meaning throughout the summer).
In 2024, after a decrease in inflation and an increase in unemployment, the Fed lowered the benchmark interest rate by about 1%, to around 4.3%. In response to inflation, the Fed quickly raised rates, reaching the highest level in 20 years in 2022 and 2023.
As the trade war and inflation slowly approach the Fed’s 2% target level, the President has repeatedly urged the Fed to cut rates. However, Fed Chairman Jerome Powell stated that the Fed would not be influenced by political interference.