Federal Reserve officials discussed in January the need for further inflation reduction before considering additional interest rate cuts, expressing concerns about the potential impact of President Donald Trump’s tariffs on achieving this goal, according to minutes released on Wednesday.
During the Federal Open Market Committee (FOMC) meeting, policymakers unanimously decided to keep their key policy rate unchanged after three consecutive cuts totaling one percentage point in 2024.
In their discussions, members highlighted the possible implications of the new administration’s policies, including tariffs, deregulation, and tax changes. The committee noted that current policy is now “considerably less restrictive” than before the cuts, giving them time to assess economic conditions before making further adjustments.
Officials emphasized the need to monitor economic activity, labor market conditions, and inflation trends under the current policy stance. They indicated a preference for seeing more progress on inflation—so long as the economy continues moving toward full employment—before considering any further changes to the federal funds rate.
Committee members also expressed concerns that policy changes could sustain inflation above the Fed’s target. Trump had already implemented some tariffs and recently threatened to expand them.
On Tuesday, Trump mentioned the possibility of imposing tariffs as high as 25% on automobiles, pharmaceuticals, and semiconductors, which could escalate throughout the year. Although he did not provide specific details, such tariffs would mark a significant shift in trade policy and could contribute to inflationary pressures despite recent signs of easing.
According to the meeting summary, FOMC members discussed the potential impacts of changes in trade and immigration policies, along with strong consumer demand. Business contacts in several regions reported plans to pass higher input costs from potential tariffs onto consumers.
The minutes noted «upside risks to the inflation outlook,» particularly emphasizing the potential consequences of trade and immigration policy changes.
Since the meeting, most central bank officials have taken a cautious approach to future policy decisions, with many believing that current interest rate levels provide sufficient time to evaluate the next steps.
Beyond employment and inflation, Trump’s fiscal and trade policies have added complexity to Fed discussions.
Despite concerns about tariffs and inflation, the minutes reflected «substantial optimism» about the economic outlook, partially driven by expectations of regulatory easing and tax policy changes.
While many economists predict that Trump’s proposed tariffs could push inflation higher, Fed policymakers have signaled that their response will depend on whether these price increases are temporary or could lead to sustained inflationary pressures, which may require policy adjustments.
Recent inflation indicators have shown mixed results, with consumer prices rising more than expected in January, while wholesale prices suggest weaker upstream pressures.
Fed Chair Jerome Powell has largely avoided speculating on the direct effects of tariffs, though other officials have acknowledged their potential policy impact, possibly delaying further rate cuts. Market expectations currently anticipate potential cuts in July or September, with the Fed’s benchmark overnight borrowing rate currently set between 4.25% and 4.5%.
