U.S. FOMC Meeting Minutes (May 6-7, 2025)

Minutes show Fed is in no rush to cut rates amid heightened policy uncertainty 

• The Federal Open Market Committee (FOMC) held the policy rate steady in the target range of 4.25-4.5% at its May 6-7th meeting. Unsurprisingly, the minutes from that meeting revealed a growing uncertainty among participants on the economic outlook, as this was the first FOMC deliberation following President Trump's reciprocal tariff announcement on April 2nd. 
• A key focal point of the discussion centered around heightened trade and economic policy uncertainty, with Committee members judging the "uncertainty around the projection as elevated relative to the average over the past 20 years". 
• The staff projection in May – not to be confused with the Summary of Economic Projections – for real GDP growth in 2025 and 2026 was weaker than what was presented at the March meeting. The labor market was also expected to "weaken substantially, with the unemployment rate forecast moving above the staff's estimate of its natural rate by year-end and remaining there through 2027". The outlook for inflation was also revised higher in light of the announced trade policies. 
• On the current labor market situation, participants continued to judge conditions as "broadly balanced". However, several participants referenced business surveys or their contacts reporting limiting or pausing hiring because of elevated uncertainty. Some participants acknowledged the risk that the labor market could weaken over the coming months but noted that the outlook ultimately hinges on the evolution of trade and other government policy. 
• Regarding inflation, participants acknowledged that recent progress has been uneven and noted that the uptick in short-term survey and market-based measures of inflation expectations following a period of higher inflation could make firms more willing to increase prices. Some participants also noted that supply chain disruptions caused by tariffs could have persistent effects on inflation, as they did during the pandemic. 
• The vote to hold rates steady was unanimous. Participants assessed that the Committee was well positioned to wait for more clarity on the policy front as it maintained still restrictive monetary policy against a backdrop of still solid domestic growth and a healthy labor market.

Key Implications

• The minutes underscored the heightened economic uncertainty policymakers were facing during their last interest rate decision. While trade tensions have generally eased since that meeting, there remains considerable uncertainty on how the new administration's tariff and other policy changes will ultimately ripple through the economy. We remain of the view that today's still elevated tariff levels will lead to some softening in domestic spending and upward pressure on inflation through the second half of this year. 
• That said, the economy has so far held up better than expected. The labor market has shown no signs of buckling, consumer spending has remained largely resilient, and equity markets have more than recovered from April's selloff. With policymakers characterizing today's policy stance as "well positioned" and only "moderately restrictive", the FOMC continues to show little desire to adjust its policy rate until the economic data compels them to do so.

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