On May 28 local time, the Federal Reserve released the minutes of the Federal Open Market Committee (FOMC) meeting held from May 6 to 7. The minutes show that at the last meeting, the staff of the Federal Reserve explicitly admitted that in the coming months, they are highly likely to face a “difficult trade-off” situation, that is, on the one hand, they have to deal with the pressure of rising inflation, and on the other hand, they also have to solve the problem of rising unemployment. The expectations of Federal Reserve officials regarding the increased risk of economic recession have further supported this outlook.
The simultaneous rise in inflation and unemployment rate will undoubtedly force the committee members to make a difficult choice: whether to prioritize tightening monetary policy to combat inflation or to support economic growth and employment through interest rate cuts. As the US economy gradually ADAPTS to the higher import taxes proposed by the Trump administration, the meeting minutes pointed out that “almost all participants indicated that inflation might be more persistent than expected.”
The Federal Reserve expects that due to tariffs, the inflation rate this year will rise “significantly”. Meanwhile, the job market “is expected to weaken significantly”. By the end of this year, the unemployment rate will rise above the long-term expected level of full employment and will remain at this high level for the next two years.
It can also be seen from the meeting minutes that the participants unanimously agreed that given the current stable economic growth and labor market, as well as the moderately tight monetary policy, the Federal Open Market Committee (FOMC) is in a favorable position and can wait until the inflation and economic outlook become clearer before taking further actions. However, it cannot be ignored that the uncertainty of the economic outlook has further increased. It is appropriate to adopt a cautious attitude before the impact of a series of policy adjustments by the government on the economy becomes clearer.
When assessing the outlook for monetary policy, the participants emphasized that they would continue to closely monitor the impact of future information on the economic outlook. If there are risks that may hinder the achievement of the committee’s goals, they will be prepared to adjust the monetary policy stance as appropriate. Its assessment will comprehensively consider a wide range of information, covering multiple aspects such as the conditions of the labor market, inflationary pressure and inflation expectations, as well as developments in the financial and international situations.
The situation of rising inflation and unemployment risks revealed in the minutes of this Federal Reserve meeting has drawn widespread attention from the market. In the future, how the Federal Reserve will weigh the pros and cons and formulate appropriate monetary policies under the complex economic situation has become the focus of attention from all sectors.
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