The Federal Reserve building, in Washington, on Jan. 26, 2022.Joshua Roberts/Reuters
U.S. Federal Reserve policy-makers were nearly unanimous at their meeting last month that the U.S. economy faced risks of simultaneously higher inflation and slower growth, with some policy-makers noting that “difficult trade-offs” could lie ahead for the central bank, according to the minutes of the meeting.
The March 18-19 session was held in the wake of initial Trump administration tariff plans that raised uncertainty about the economic outlook and led participants to favour a “cautious approach” that could opt to keep interest rates higher for longer if inflation were to persist, or cut rates if a weakening economy needed more immediate attention.
“Participants assessed that uncertainty around the economic outlook had increased, with almost all participants viewing risks to inflation as tilted to the upside and risks to employment as tilted to the downside,” according to the minutes, which were released on Wednesday.
Some at the meeting “observed … that the (Federal Open Market) Committee may face difficult trade-offs if inflation proved to be more persistent while the outlook for growth and employment weakened.”
Trump on April 2 unveiled an even more aggressive and broadly applied set of import taxes than what had been announced before the March meeting.
Stocks had cratered as a result, but on Wednesday surged after Trump announced he was pausing many of the new levies for 90 days. If that was a relief to markets – major indexes rose 6% or more and investors cut the expected number of Fed rate cuts this year to 3 from 4 – it highlighted the very uncertainty the minutes cited.
Even from the more limited vantage point of March, Fed officials cut their forecasts for economic growth, raised their inflation outlook for 2025, and trimmed the number of projected quarter-percentage-point rate cuts for this year from three to two.
As of mid-March, before the rout in stock prices that followed Trump’s more recent tariff announcements, Fed officials already were concerned about the risks of “an abrupt repricing.”
“A few participants cautioned that an abrupt repricing of risk in financial markets could exacerbate the effects of any negative shock to the economy,” the minutes said.