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According to minutes from their May 6-7 meeting, released
Wednesday, “almost all” of the 19 officials that participate in
the Fed's meetings on policy saw a risk that "inflation could
prove to be more persistent than expected.” The policymakers
showed greater concerns about higher inflation than rising
unemployment, the minutes showed, a key reason they left rates
unchanged.
Their decision flew in the face of Trump's repeated calls to
reduce borrowing costs because, in his view, there is “NO
INFLATION.” The central bank, led by Chair Jerome Powell, cut
its key rate three times last year to about 4.3%. Federal
Reserve staff economists said during the meeting that inflation
“remained elevated,” the minutes showed.
Trump's tariffs have created a dilemma for the Fed because the
duties could both raise inflation — which the Fed would
typically fight with higher interest rates — and slow the
economy and push up unemployment, which the central bank usually
tries to counter with lower rates.
Officials “judged that downside risks to employment and ...
upside risks to inflation had risen, primarily reflecting the
potential effects of tariff increases,” the minutes said.
Since the meeting, many officials have underscored that the Fed
may have to wait for some time before making any further moves
with interest rates.
Policymakers said there was “considerable uncertainty
surrounding the evolution of trade policy" and its impacts on
the economy, the minutes said.
“Taken together, (officials) saw the uncertainty about their
economic outlooks as unusually elevated,” the minutes said.
At the same time, at least some Fed officials expressed a range
of concerns that tariffs would likely raise prices in the months
ahead. Many policymakers said that their surveys and discussions
with business leaders suggested that companies were likely to
pass at least some or all of the cost of the extra duties on to
consumers. Several of the officials said that companies not
affected by the tariffs could seek to raise their prices if
other companies did so.
And the fact that the economy recently experienced the highest
inflation in 40 years in 2022 suggested that companies might be
more willing to raise prices than previously, when consumers had
little experience of inflation, several officials said.
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