WASHINGTON (AP) – Federal Reserve officials have come to a consensus earlier this month to hold off on any changes to interest rates while they evaluate the effects of President Donald Trump’s policies on inflation, unemployment, and the broader economy.
According to the minutes from the meeting held on May 6th-7th, released on Wednesday, nearly all of the 19 officials present at the Federal Reserve policy conference recognized the risk that “inflation could turn out to be more persistent than anticipated.” The minutes indicated that policymakers expressed heightened concern over rising inflation compared to increasing unemployment levels, which contributed to their decision to keep the rates unchanged.
This decision contradicted Trump’s repeated assertions that there is “no inflation,” suggesting a decrease in borrowing costs. The central bank, under Chairman Jerome Powell, had lowered its key rate to around 4.3% three times in the previous year. During the meeting, Federal Reserve staff economists noted that inflation was “still on the rise,” as indicated in the minutes.
Trump’s tariffs created a dilemma for the Fed, as the imposition of these tariffs was likely to both increase inflation—which would typically prompt the Fed to raise interest rates—and decelerate economic growth, leading to higher unemployment rates.
“Officials concluded that the downside risks to employment and… the upward risks to inflation have escalated, primarily due to the potential impacts of heightened tariffs,” the minutes stated.
Since that meeting, numerous officials have underscored that the Fed may need to remain patient regarding any further changes to interest rates.
“There exists considerable uncertainty surrounding the progression of trade policies and their effects on the economy,” the minutes stated.
“In agreement, (the officials) acknowledged that uncertainties regarding their economic forecasts are unusually pronounced,” the minutes noted.
Simultaneously, some Fed officials have voiced concern about the likelihood that tariffs will cause prices to rise in the forthcoming months. Many policymakers indicated that discussions with business leaders and research suggest that companies are likely to pass some or all of their increased costs onto consumers. Some officials have remarked that businesses unaffected by tariffs might still advocate for price increases.
Additionally, the fact that the economy experienced its highest inflation rate in 40 years in 2022 suggests that consumers may be more receptive to price hikes now than before, when inflation was less familiar, several officials pointed out.
Source: apnews.com