Fed Minutes Highlight Elevated Uncertainty, Tariff Risks Complicate Rate-Cut Outlook — Evening Brief – 05.28.25 

Federal Reserve policymakers acknowledged “unusually elevated” uncertainty surrounding the U.S. economic outlook and warned that risks to both employment and inflation had increased, according to minutes from the Federal Open Market Committee’s May 6–7 meeting. 

The term “uncertainty” appeared 19 times in the minutes—slightly down from 21 in March—but remained a focal point of discussion. References to tariffs were also prominent, mentioned 17 times, as Fed officials grappled with the potential economic fallout from trade policy developments. 

Although the meeting occurred before recent reductions in tariffs on Chinese imports and shifts in fiscal dynamics, the minutes suggest that Fed officials remain cautious. They noted that persistent uncertainty around tariffs, inflation, and labor market conditions may delay any policy changes. Since the meeting, stronger “soft” survey data has emerged, even as “hard” economic data continued its steady growth, pushing market expectations for rate cuts further out, with some now anticipating moves in 2026 rather than 2025. 

“Overall, participants judged that downside risks to employment and economic activity and upside risks to inflation had risen, primarily reflecting the potential effects of tariff increases,” the minutes stated. 

Several officials highlighted concerns that higher tariffs could fuel inflation by increasing costs that businesses might pass along to consumers. Even firms not directly impacted by tariffs could use the policy environment as justification for broader price hikes. While most measures of long-term inflation expectations remain anchored, the Fed flagged a risk of upward drift. 

“Participants noted that the Committee might face difficult tradeoffs if inflation proves to be more persistent while the outlook for growth and employment weakens,” the minutes read. “Participants agreed that uncertainty about the economic outlook had increased further, making it appropriate to take a cautious approach until the net economic effects of the array of changes to government policies become clearer.” 

Despite trade distortions like a surge in March imports, U.S. GDP growth and consumer spending were described as solid heading into the second quarter. Since the FOMC meeting, markets have posted a mixed performance—stocks and oil rallied, while gold and bonds declined, and the U.S. dollar held steady.