Fed Meeting Minutes: Trump Tariffs May Trigger More Persistent Inflation Risks

The latest minutes from the Federal Reserve's meeting show that officials are increasingly concerned that President Trump's tariff policies could lead to more stubborn inflation pressures. These tariffs are believed to have adverse effects on consumer spending, business investment, and overall economic growth. In the minutes of the Federal Open Market Committee (FOMC) meeting on March 19-20, the word "tariffs" was mentioned 18 times, compared to only once in the January meeting, indicating a significant increase in attention. During the meeting, the Fed kept the federal funds rate target range unchanged at 4.25%-4.50% and signaled an expectation of three rate cuts in 2024 (25 basis points each). Increasing inflation concerns: Policy makers have different opinions The minutes stated, "Most participants thought that the inflation effects arising from various sources might be more persistent than currently anticipated." This assessment has drawn high market attention, especially in the context of ongoing price pressures. Aside from the tariffs themselves, Federal Reserve officials are also concerned about tightening financial conditions and the spillover effects of market volatility. The minutes mentioned, "A sudden repricing of risk in financial markets may exacerbate the impact of any negative economic shocks." Furthermore, there are differences of opinion among policy makers regarding the economic outlook. Some participants noted that the scale and scope of the tariffs announced or planned by the Trump administration exceeded their expectations based on input from business contacts. However, some participants believed that the inflation effects of tariffs may be somewhat restrained due to structural factors that are inhibiting economic growth, such as depleted household savings and stricter immigration policies. Tariff policies roil markets, increasing risk of economic recession It is worth noting that the FOMC meeting took place before President Trump announced his global tariff plan on April 2. The plan proposed a uniform 10% tariff on almost all imported goods and higher "reciprocal tariffs" on most trading partners. Following the policy announcement, stock markets declined, with many economists predicting that the U.S. could fall into recession later this year. On Wednesday, President Trump announced a suspension of tariffs on most countries for at least 90 days to facilitate further negotiations. This move briefly boosted market sentiment, with the S&P 500 index recording its largest single-day gain since 2008. However, the Fed warned in the minutes that the high degree of uncertainty surrounding trade policy may continue to dampen consumer spending, business hiring, and investment, regardless of how the policy evolves. The meeting summary stated, "Participants generally agreed that the downside risks to employment and economic growth have increased, inflation risks have also risen, and the high level of uncertainty about the overall economic outlook remains a major concern." Federal Reserve maintains a cautious stance Despite the uncertain economic outlook, the minutes emphasize that the Federal Reserve will continue to adopt a "wait-and-see" approach. Ben Ayres, senior economist at Nationwide, stated in an analysis report on Wednesday, "The minutes did not signal a swift return to easing policy by the Fed. Although officials are acutely aware of potential downside risks, the basic judgment is that the Fed will maintain rates at their current level for some time to observe the impact of policy disruptions on the economy." According to the CME FedWatch tool, the market currently expects three rate cuts in 2024, in line with the Federal Reserve's own forecast. The next FOMC meeting will be held on May 6-7.