The Federal Reserve is set to release its highly anticipated minutes from the Federal Open Market Committee (FOMC) meeting on May 28, 2025, at 18:00. This publication is especially timely as the US economy continues to face the negative economic impacts of tariffs and inflationary pressures. The FOMC minutes are always a good source of information about how the central bank arrives at policy decisions. This time, they’re almost sure to more closely mirror the Federal Reserve’s new-found hawkishness and dimmer economic expectations.
The minutes are usually released three weeks after the policy decision is announced. The Federal Reserve publishes data in fits and starts. This unpredictability creates a fascinating wild card in their communications. Importantly, there is no longer a consensus on what the Federal Reserve will do next and there is no prior release history.
Economic Context and Interest Rates
In its most recent meeting, Federal Reserve officials faced an unequivocal decision. They voted unanimously to hold the benchmark interest rate at its current range of 4.25% to 4.50%. This decision aligns with their cautious approach amid ongoing economic uncertainties, particularly those linked to tariff implications on domestic and international markets.
As the Chairman Jerome Powell stated, a response should be “measured” and take into account changing economic circumstances. He added, “We feel very good about our policy stance.” This all highlights that the Federal Reserve is in no hurry to raise. In his speech, Powell again hinted at a need for patience, saying, “We think it’s better to wait and see how things work out.” He went on, “I think that’s clear with all the uncertainty.”
Beyond just keeping rates unchanged, the Federal Reserve’s also begun a measured unwind of its balance sheet. Beginning in April, it limited its roll-off of Treasuries to just $5 billion a month. Concurrently, it allowed for up to $25 billion in Treasuries to roll off each month. This new strategy is meant to offer state DOTS more flexibility to react in real time to changing economic indicators.
Tariff Concerns Impacting Economic Outlook
As the Federal Reserve braces itself for next week’s release, worries about the inflationary effects of tariffs continue to be front-page news. Tariff fears risk taking the US dollar below its 2025 nadir. This could make reversing even hefty economic recovery efforts more complicated.
Powell is willing to admit that current tariffs are “a good part” of their newly raised expectations for higher inflation. This welcome recognition points to a broader truth: external forces have a major impact on our national economic picture. Trade policies and international relations have become an equally important part of that shaping process.
For their part, Fed officials have noted a rise in uncertainty about the economic outlook. First, they said, “Uncertainty around the economic outlook has darkened. The Committee remains acutely aware of the risks to each side of its dual mandate.” Their dual mandate makes possible both maximum employment and stable prices. External pressures have made it more challenging to balance these goals.
Future Monetary Policy Considerations
In summary, the Federal Reserve is committed to closely monitoring the economy and making data-driven decisions about monetary policy as necessary, in line with their dual mandate. Powell floated the idea of further interest rate cuts. He proposed this should take place if inflation falls below 2% or if there’s a large increase in the unemployment rate. Under such circumstances, TEA may soon find itself considering changing its position.
Moreover, Powell highlighted the ongoing changes in policy under the new Administration across multiple domains: trade, immigration, fiscal policy, and regulation. He remarked, “Looking ahead, the new Administration is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation.” The combined impact of these changes will be key in shaping the long-term direction of monetary policy.