Fed Minutes Unpacked: Why Rising Inflation & Unemployment Risks Mean a Cautious “Wait and See”

The latest Fed Meeting Minutes are out, and the big takeaway is a cautious stance as a tricky economic balancing act looms.

Heads up, market watchers! The Federal Reserve (Meilianchu 美联储) just dropped the minutes from its May monetary policy meeting, and it’s clear officials are bracing for potential turbulence.

They’re eyeing a “difficult trade-off” in the months ahead.

What’s the deal? Both inflation and unemployment could be on the rise, and with economic uncertainty cranked up, a careful, wait-and-see approach to monetary policy is the name of the game for now.

Let’s dive into what this means for investors, founders, and the broader economy.

A Brewing Economic Storm: Inflation vs. Jobs

It looks like the economic waters are getting choppier.

According to the minutes, policymakers believe the risks of both rising unemployment and stubborn inflation have climbed since their March decision.

A primary driver for this concern? The tariff policies set in motion by Trump (Telangpu 特朗普).

This tricky situation could put the Fed’s core goals in direct conflict:

• Stable prices (fighting inflation).
• Maximum employment (supporting job growth).

This means the Federal Open Market Committee (FOMC) (Lianbang Gongkai Shichang Weiyuanhui 联邦公开市场委员会) members might soon face a tough choice:

• Do they tighten monetary policy to squash inflation, potentially at the cost of jobs?
• Or, do they lower interest rates to boost economic growth and employment, possibly letting inflation run hotter?

Patience is a Virtue: The Fed’s Current “Hold” Strategy

For now, the Fed is playing it cool.

Participants at the meeting unanimously agreed on a key point: the FOMC is in a position to wait for a clearer picture of inflation and economic activity.

Their reasoning?

• Economic growth remains solid.
• Labor market conditions are holding up.
• Current monetary policy is seen as moderately restrictive.

However, there’s no ignoring the elephant in the room: heightened economic uncertainty.

This uncertainty has officials convinced that a cautious approach is the smart move, at least until the economic dust settles from a series of policy changes under the Trump administration.

The minutes clearly signal a willingness from Fed officials to keep interest rates right where they are for a while.

Why? Because policy shifts in Washington are casting a significant shadow over the economic outlook.

True to this, at the May meeting, the FOMC decided to keep the target range for the federal funds rate unchanged at 4.25%-4.5%.

This marks the third consecutive time they’ve held rates steady.

The Tariff Tightrope: Impact on Trade and Economic Projections

Since the May interest rate decision, there’s been some movement on the trade front initiated by Trump (Telangpu 特朗普).

On May 8th, Trump (Telangpu 特朗普) announced an outline for a new trade deal with the United Kingdom.

Following that, China and the United States also agreed to significantly lower tariffs on each other’s goods.

But here’s the catch: U.S. tariff rates are still at historically high levels.

This is forcing many businesses to hit pause on hiring and big investment decisions.

The upshot? As the U.S. economy grapples with adapting to these higher tariffs, almost all Fed participants indicated that inflation could be more persistent than previously expected.

What the Fed Expects: More Inflation, Weaker Jobs

The Fed isn’t mincing words about the potential fallout from tariffs:

• Inflation is anticipated to rise “significantly” this year due to their impact.
• The job market is “expected to weaken substantially.”

This aligns with what many economists are saying: tariffs are likely to push up inflation and drag down economic growth.

Interestingly, though, recession forecasts have been somewhat dialed back after the recent easing of trade tensions.

Revised Growth Forecasts & Market Jitters

The Fed staff’s crystal ball isn’t looking quite as rosy as it did in March.

The minutes revealed that forecasts for real GDP growth in 2025 and 2026 were lowered.

The main culprit? Announced trade policies, which imply a greater drag on real economic activity than the policies factored into earlier forecasts.

Trade policy isn’t just about tariffs; it’s also expected to lead to slower productivity growth.

This, in turn, could reduce potential GDP growth in the coming years.

Bond Market Volatility & The Dollar’s Status

Fed officials also took note of something else stirring in the markets.

Volatility in U.S. bond markets in the weeks leading up to the May meeting was described as “noteworthy.”

They also pointed out that shifts in the U.S. dollar’s safe-haven status, coupled with rising U.S. Treasury yields, could have long-term effects on the economy.

These are subtle but important signals for investors to track.

• New projections for inflation, employment, and economic growth.
• Views on appropriate interest rates for the period ahead.

Rethinking the Playbook: Fed’s Policy Framework Under Review

The meeting wasn’t just about the immediate future; there was also talk about the bigger picture.

The Fed’s five-year policy framework was on the discussion table.

Fed Chairman Powell (Baowei’er 鲍威尔) mentioned that officials agreed on something crucial: the need to re-evaluate the key factors surrounding employment and inflation within the current monetary policy approach.

This suggests the Fed is open to adapting its strategies as the economic landscape evolves.

What’s Next? Mark Your Calendars

All eyes will be on the Fed’s next meeting, scheduled for June 17-18.

At this meeting, the Fed will release:

• New projections from policymakers for the outlook on inflation, employment, and economic growth.
• Their views on appropriate interest rates for the period ahead.

As for market expectations? Currently, the smart money sees virtually no possibility of a rate cut before the September meeting.

So, the key theme from these Fed minutes is patience and vigilance in the face of complex economic signals and ongoing policy impacts.

References

• 美联储会议纪要：通胀和失业风险上升，准备等待前景更加明朗 – 财联社
• Fed Officials Grapple with Economic Uncertainties, Minutes Show – Reuters
• Trade Tariffs Clouding U.S. Economic Outlook, Analysts Say – The Wall Street Journal
• Markets Eyeing Fed’s Next Move Amid Data Releases – Bloomberg