Federal Reserve officials agreed to keep interest rates on hold and adopt a cautious stance as they navigate growing uncertainty over inflation, recession risks, and global trade tensions, according to minutes from the central bank’s May meeting released Wednesday.
Policymakers acknowledged the possibility of “difficult tradeoffs” in the months ahead, as inflation pressures persist while the labor market shows signs of weakening.
“Participants noted that the Committee might face difficult tradeoffs if inflation proves to be more persistent while the outlooks for growth and employment weaken,” the minutes noted.
Fed staff assessments underscored this challenge, projecting a "markedly" higher inflation rate this year due to tariffs, alongside a rise in unemployment above long-run sustainable levels. Staff said the chance of a recession was “almost as likely” as their baseline forecast of continued, but slowing, growth.
The minutes highlighted uncertainty over US trade policy, with officials noting that recently imposed tariffs were “much larger” and “broader than expected.”
Though President Donald Trump later delayed the most severe levies—such as a 145% tariff on Chinese imports—those measures remain on hold only temporarily.
Fed Chair Jerome Powell and other officials have since reiterated that the central bank is in a wait-and-see mode. The policy rate remains at 4.25% to 4.5%, and officials stressed the need for greater clarity on the economic outlook before making further moves.
“Almost all participants commented on the risk that inflation could prove to be more persistent than expected,” the minutes said, reinforcing the Fed’s intent to proceed cautiously amid conflicting signals on growth and inflation.