Fed minutes spell out recession risk and inflation worries
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The news: US Federal Reserve officials acknowledged they face “difficult tradeoffs” in coming months, with rising risks of both inflation and unemployment due to tariffs, minutes of their May meeting show.
Members from the Federal Open Market Committee on 7 May held interest rates at 4.25%-4.5%, citing heightened economic uncertainty, especially from tariffs.
Fed projections indicated the possibility of recession was “almost as likely as the baseline forecast,” with inflation expected to rise “markedly” this year and unemployment rising above its natural rate through 2027.
What they said: “Almost all participants commented on the risk that inflation could prove to be more persistent than expected,” the minutes said. “Participants emphasized the importance of ensuring that longer-term inflation expectations remained well anchored.”
“Participants noted that the Committee might face difficult tradeoffs if inflation proves to be more persistent while the outlooks for growth and employment weaken. Participants observed, however, that the ultimate extent of changes to government policy and their effects on the economy was highly uncertain.”
The context: The Fed decision came days before a 90-day US-China tariff reprieve, though duties remain high, with the duty imposed on Chinese goods at 30% and the tariff on US good at 10%.
Meanwhile, a Fed survey conducted in October 2024 showed 73% of US adults were “doing okay or living comfortably,” with 29% describing the economy as “good” or “excellent.” Inflation and housing affordability remained major challenges, with 25% of respondents falling behind on payments last year.
The sources: Federal Reserve, FOMC minutes
