Fed Maintains Rates Amid Inflation, Tariff Tradeoffs

Federal Reserve officials have expressed growing concern that new tariffs and economic uncertainties could intensify inflation while weakening growth, creating a challenging policy dilemma. Minutes from the May 6–7 FOMC meeting reveal that officials unanimously kept interest rates steady, citing solid economic activity but highlighting risks from government policy shifts, especially trade tariffs with China, which are expected to boost inflation and reduce productivity. The Fed noted that businesses are already passing increased costs to consumers, and although the labor market remains stable with low unemployment, hiring and investment intentions are weakening amid uncertainty. Officials are committed to the 2% inflation target but worry about rising longer-term inflation expectations following prolonged inflationary pressures. The Fed is taking a cautious approach to further rate adjustments, waiting for more clarity on the economic outlook, while also acknowledging the near-equal likelihood of a recession, influenced by tariff policies and trade negotiations. Additionally, political developments such as President Trump's tariff threats and immigration policy changes contribute to the economic unpredictability that complicates the Fed's monetary policy decisions.