Federal Reserve Minutes: Most officials are concerned that the impact of tariffs on inflation will last longer, and some fear facing "difficult trade-offs."

The minutes of the meeting show that at the most recent Federal Reserve monetary policy meeting three weeks ago, the Fed decision-makers unanimously believed that the tariffs and other policies of the Trump administration have led to high economic uncertainty, and therefore the Fed should continue to pause interest rate cuts. They are concerned that the inflationary impact of tariffs and other factors will persist longer.

Commentators noted that these minutes confirm that Fed decision-makers are afraid of the uncertainty surrounding Trump's trade policies. Wall Street Insight observed that the term "uncertainty" was mentioned 21 times throughout the minutes, with more than ten direct references to high uncertainty or increasing uncertainty.

Nick Timiraos, a senior reporter known as the "new Federal Reserve correspondent," stated that in the minutes, Fed officials emphasized the risk that inflation caused by tariffs would be "more persistent." Although Fed officials believe that monetary policy can be adjusted according to changing circumstances to address potential risks, several decision-makers pointed out that if inflation persists longer and the outlook for economic growth and employment worsens, they may have to make "difficult trade-offs" between employment and inflation.

Decision-makers unanimously believe that economic outlook is highly uncertain and inflation faces upward risks

Last month, the Federal Reserve decided to keep interest rates unchanged for the second consecutive monetary policy meeting. The Fed statement released after the meeting removed the wording that the risks to employment and inflation targets were generally balanced, stating that economic outlook uncertainty has increased. The minutes released on Wednesday, April 9, Eastern Time, show that during last month's discussion on monetary policy,

"Participants noted that inflation rates remain somewhat elevated and pointed out that recent indicators show that economic activity continues to expand steadily, with the unemployment rate stable at low levels and labor market conditions remaining robust in recent months. Against this backdrop, with elevated uncertainty regarding the economic outlook, all participants agreed that it is appropriate to maintain the policy interest rate unchanged."

The minutes stated that in discussing the current environment and economic outlook, "participants generally pointed out that the economy faces high uncertainty. Information from business contacts and multiple surveys indicate that confidence among households and businesses has declined amid increasing uncertainty regarding government policies. Several participants commented that high uncertainty may suppress consumer spending as well as business hiring and investment activities, or that tariff increases may push up inflation."

"Therefore, participants generally believe that employment and economic growth face downside risks, while inflation faces upward risks, simultaneously implying that the economic outlook they provided has high uncertainty."

The Fed is fully capable of waiting for clearer inflation and economic outlooks before taking action

In discussing the outlook for monetary policy, the minutes stated:

"Participants noted that there is high uncertainty regarding the net effects of a series of government policies on the economic outlook, and therefore a cautious approach is appropriate. A majority of participants emphasized this uncertainty and pointed out that the inflation effects caused by various factors may be more persistent than they had anticipated.

Given the robust economic growth and labor market, along with the current tightening of monetary policy, participants believe that the Federal Open Market Committee (FOMC) is fully capable of waiting for a clearer outlook on inflation and economic activity. Participants noted that policy decisions do not follow a preset path but will be influenced by economic developments, economic outlook, and risk balance.”

Some participants pointed out the potential "difficult tradeoffs" regarding inflation, employment, and economic growth

The minutes stated that during discussions on risk management considerations that could affect the monetary policy outlook, “participants believe that uncertainty regarding the economic outlook has increased, and almost all participants view inflation risks as tilted to the upside, while employment risks are tilted to the downside.”

Participants pointed out that the Federal Reserve's monetary policy is prepared to respond to future developments; if inflation remains high, tightening policies can be maintained for a longer period, and if labor market conditions worsen or economic activity weakens, monetary policy can be loosened. The minutes then stated:

“However, some participants pointed out that if inflation proves to be persistent while growth and employment prospects weaken, the FOMC may face difficult tradeoffs. Some participants emphasized that the duration of high inflation may be longer than expected.”

The Federal Reserve staff's assessment of the economic outlook also indicated that staff's real GDP growth expectations are weaker than those prepared during the January Federal Reserve meeting.

Almost all supported slowing the balance sheet reduction last month, but many felt there was no compelling reason

The decision from last month's Federal Reserve meeting was to slow the pace of quantitative tightening (QT) in reducing the balance sheet starting this month, specifically by lowering the monthly redemption cap for U.S. Treasury bonds from $25 billion to $5 billion.

The minutes of this meeting mentioned that in assessing the balance sheet reduction actions, all participants deemed it appropriate to continue the reduction, and almost all participants supported slowing the pace of the balance sheet reduction at this meeting. Most participants believed it was essential to convey the message that slowing the pace of balance sheet reduction would not affect the monetary policy stance or the long-term trajectory of the balance sheet.

Some participants pointed out that slowing the pace of balance sheet reduction could also help prevent unexpected shortages of bank reserves during periods when the cash balance in the U.S. Treasury General Account (TGA) might grow rapidly. However, several felt that there was no compelling reason to slow the balance sheet reduction at this meeting