The Federal Open Market Committee (FOMC) met on May 6-7, 2025, and decided to keep the federal funds rate steady at a target range of 4.25% to 4.5%.
Officials expressed ongoing worries about fiscal and trade policies, especially the risk that tariffs could worsen inflation and complicate monetary policy decisions.
The minutes released Wednesday reveal that committee members are cautious due to increased uncertainty about the economic outlook. They noted that if inflation remains persistent while growth and employment weaken, the Fed might face tough tradeoffs.
Despite these concerns, the economy is still growing solidly, the labor market remains balanced, and consumer spending continues.
Officials emphasized a “wait-and-see” approach, preferring to hold rates steady until there is more clarity on fiscal and trade policies. Since the meeting, some tariffs between the U.S. and China have been eased, which helped boost stock markets, though bond yields have risen.
The Fed also discussed its long-term monetary policy framework. They reviewed the “flexible average inflation targeting” strategy, which allows inflation to run above 2% temporarily to support the labor market.
However, officials acknowledged this approach has limits, especially when inflation shocks are large or interest rates are not near zero.
No changes were made to the inflation target, and the Fed remains committed to supporting maximum employment and returning inflation to its 2% goal.
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