Fed Saw Inflation and Jobless Stability Risks at May Meeting

• U.S. Federal Reserve (Fed) officials at their last meeting acknowledged they could face "difficult tradeoffs" in coming months in the form of rising inflation alongside rising unemployment. This outlook is buttressed by concerns about financial market volatility with Fed staff warnings of increasing recession risk, according to minutes of the May 6-7 session.
• The foreboding outlook has likely shifted since then following President Donald Trump's decision just a week after the meeting to postpone the severe import tariffs, including a 145% levy on goods from China, that had forced up bond yields, driven down stock prices, and led to widening predictions of a U.S. economic downturn.
• However, the minutes released on Wednesday, May 28, 2025, still showed Fed policymakers and staff engaged in a consequential discussion of the likely fallout from Trump administration policies that remain in flux, with even the highest tariffs on hold but not yet withdrawn altogether.
• Officials at the meeting noted that volatility in bond markets in the weeks before "warranted monitoring" as a possible risk to financial stability and noted that a change in the U.S. dollar's safe-haven status, along with rising Treasury bond yields, could have long-lasting implications for the economy.
• Fed officials continue to cite the possibility of inflation and unemployment rising in tandem as a risk that would leave them forced to decide whether to prioritise fighting inflation with tighter monetary policy or cutting interest rates to support growth and employment.
• The Fed next meets on June 17-18, when the central bank will release new projections from policymakers about their outlook for inflation, employment and economic growth in coming months and years, and the projected interest rate they feel would be appropriate. At their March meeting, the median projection among policymakers was for two quarter-point interest rate cuts by the end of 2025.

(Source: Reuters)