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American Focus > Blog > Economy > Fed worried it could face ‘difficult tradeoffs’ if tariffs reaggravate inflation, minutes show
Economy

Fed worried it could face ‘difficult tradeoffs’ if tariffs reaggravate inflation, minutes show

Last updated: May 28, 2025 1:00 pm
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Fed worried it could face ‘difficult tradeoffs’ if tariffs reaggravate inflation, minutes show
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The Federal Reserve officials gathered earlier this month to discuss the potential impact of tariffs on inflation and interest rate policy. The minutes from the May 6-7 meeting revealed concerns about the uncertainty surrounding fiscal and trade policies, leading to a decision to maintain steady interest rates.

According to the meeting summary, participants acknowledged the increased uncertainty in the economic outlook and agreed to take a cautious approach until the effects of government policy changes became clearer. There was a recognition that the Committee might face difficult tradeoffs if inflation persisted while growth and employment outlooks weakened.

Despite concerns about inflation and trade policy, officials noted that economic growth remained solid, the labor market was balanced, and consumer spending continued. The Federal Open Market Committee (FOMC) maintained its benchmark federal funds rate in a target range of 4.25%-4.5%.

The post-meeting statement highlighted the growing uncertainty in the economic outlook and the challenges of achieving full employment and low inflation amid policy uncertainty. Policymakers reiterated their commitment to waiting for more clarity on fiscal and trade policies before considering any rate cuts.

Since the meeting, market expectations have shifted, with traders now pricing in minimal chances of a rate cut until September. The easing of tensions between the U.S. and China following the meeting helped boost Wall Street, although bond yields continued to rise.

President Trump’s pressure on the Fed to lower rates amidst the trade war and inflation concerns was met with resistance from Fed Chair Jerome Powell, who emphasized the central bank’s independence. The meeting also addressed the Fed’s five-year policy framework, focusing on the need for a robust policy adaptable to various economic conditions.

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Overall, the FOMC’s decision to maintain interest rates reflects a cautious approach in light of economic uncertainties. The Fed remains vigilant in monitoring inflation, trade policies, and economic indicators to ensure a balanced and sustainable monetary policy.

TAGGED:DifficultFaceFedInflationMinutesreaggravateShowTariffsTradeOffsWorried
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