U.S. FOMC Meeting Minutes (June 17-18, 2025)

Minutes Show the Fed Is Edging Closer to the Rate Cut

• The Federal Open Market Committee (FOMC) held the policy rate steady in the target range of 4.25-4.5% at its June 17-18th meeting. The minutes from that meeting highlighted that trade and policy uncertainty and their impact on inflation remained a focal point of discussion. However, uncertainty was rated as having diminished since May (as Liberation Day tariffs have been postponed and trade war with China de-escalated) leading to a less pessimistic economic outlook relative to the previous minutes.  
• The staff projection in June – not to be confused with the Summary of Economic Projections – was generally upgraded. Real GDP growth in 2025 and 2026 was higher than what was presented at the May meeting, mainly due to the reduction in assumptions about the effective tariff rate. As a result, both the unemployment rate and inflation were now expected to increase by less, than in the previous forecast. Policy uncertainty remained high, and the economic risks continued to be "skewed to the downside", although risk of a recession has diminished. 
• FOMC participants viewed the current labour market as solid, acknowledging that both hirings and layoffs have remained steady in light of heightened uncertainty and reduction in labour supply due to immigration policy. That being said, most participants expected labour market conditions to gradually soften, noting that wage growth has continued to moderate suggestive of weakening labor demand. 
• Regarding inflation, participants acknowledged that inflation remained elevated and recent progress has been uneven, with services inflation moving down recently while goods inflation has picked up. They also noted limited progress in lowering core inflation. Participants appeared in consensus that tariffs will put upward pressure on inflation, but there remained considerably uncertainty on the timing, size and duration of these effects, namely, large inventories could help firms delay passing higher costs to consumers. While some participants noted that tariffs would lead to a one-time increase in prices and thus would not affect inflation expectations, most participants noted that tariffs could have more longer lasting effects on inflation increasing the risk of inflation expectations becoming unanchored.  
• The vote to hold rates steady was unanimous. Participants assessed that the Committee was well positioned to wait for more clarity on inflation and policy front given that the economy remained solid, and the monetary policy was only "moderately or modestly restrictive". However, most participants thought that some reduction in the fed funds rate this year "would likely be appropriate", but couple of participants noted that if the data continued to evolve in-line with their expectation "they would be open to considering a reduction in the target rate for the policy rate as soon as at the next meeting".

Key Implications

• The FOMC participants acknowledged that the economy continues to perform well, uncertainty has diminished somewhat, and the labor market remains solid. That said, there appears to be less consensus among participants regarding the impact of tariffs on inflation, with some suggesting a short-term impact, while others are concerned about longer lasting effects. 
• Still, the minutes suggest that momentum for a rate cut is building within the FOMC. We are also of this view. Despite the economy’s resilience so far, this strength is likely to fade in the second half of the year (forecast), with both the unemployment rate and inflation expected to trend higher. Trade policy remains a key source of uncertainty, with tensions escalating recently, but the deadline to reach deals to avoid Liberation Day tariffs was pushed to August 1st. We expect that the FOMC's July 30th meeting is likely too early for enough certainty to have emerged for the Fed to cut rates, but the minutes suggest we could see a dissent or two on a stand pat decision. Markets currently favor a September rate cut, and we are inclined to agree.

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