Finance
Fed worried it could face ‘difficult tradeoffs’ if tariffs reaggravate inflation, minutes show
Federal Reserve officials at their meeting earlier this month worried that tariffs could aggravate inflation and create a difficult quandary with interest rate policy, minutes released Wednesday show.
The summary of the May 6-7 meeting of the Federal Open Market Committee reflected ongoing misgivings about the direction of fiscal and trade policy, with officials ultimately deciding the best course was to keep rates steady.
“Participants agreed that uncertainty about the economic outlook had increased further, making it appropriate to take a cautious approach until the net economic effects of the array of changes to government policies become clearer,” the minutes stated. “Participants noted that the Committee might face difficult tradeoffs if inflation proves to be more persistent while the outlooks for growth and employment weaken.”
Though policymakers expressed concern about the direction of inflation and the vagaries of trade policy, they nevertheless that economic growth was “solid,” the labor market is “broadly in balance” though risks were growing that it could weaken, and consumers were continuing to spend.
As it has done since the last cut in December, the FOMC kept its benchmark federal funds rate in target between 4.25%-4.5%.
“In considering the outlook for monetary policy, participants agreed that with economic growth and the labor market still solid and current monetary policy moderately restrictive, the Committee was well positioned to wait for more clarity on the outlooks for inflation and economic activity,” the summary said.
The post-meeting statement noted that “uncertainty about the economic outlook has increased further. Also, the committee said that its ability to meet its dual goals of full employment and low inflation have increased due to policy uncertainty.
Since the meeting, officials have repeated that they will wait until there’s more clarity about fiscal and trade policy before they will consider lowering rates again. Market expectations have responded in kind, with futures traders now pricing in virtually no chance of a cut until the Fed’s September meeting.
Trade policy also has evolved since the Fed last gathered.
Tariffs and ongoing saber-rattling between the U.S. and China eased a few days after the central bank meeting, with both sides agreeing to drop the most onerous duties again each pending a 90-day negotiation period. That in turn helped kindle a rally on Wall Street, though bond yields continue to climb, something Trump has sought to contain.
Amid the trade war and signs that inflation is slowly coming in towards the Fed’s 2% target, Trump has hectored Fed officials to lower rates. Fed Chair Jerome Powell, though, has said the Fed won’t be swayed by political interference.
The meeting also featured discussion about the Fed’s five-year policy framework.
When officials last visited their long-range policy, they devised what became known as “flexible average inflation targeting,” which essentially asserted that officials could allow inflation to run above their 2% target for a while in the interest of promoting more inclusive labor market gains.
In their discussion, officials noted that the strategy “has diminished benefits in an environment with a substantial risk of large inflationary shocks” or rates aren’t near zero, where they had been in the years following the 2008 financial crisis. The Fed held interest rates near the lower boundary despite inflation surging following the Covid pandemic, forcing them into aggressive hikes later.
The minutes noted a desire for policy that is “robust to a wide variety of economic environments.” Officials also said they have no intention on altering the inflation goal.
A Gamestop store is seen in Union Square on April 4, 2025 in New York City.
Michael M. Santiago | Getty Images
GameStop shares slid on Thursday after the video game retailer and meme stock announced plans for a $1.75 billion convertible notes offering to potentially fund its new bitcoin purchase strategy.
The company said it intends to use the net proceeds from the offering for general corporate purposes, “including making investments in a manner consistent with GameStop’s Investment Policy and potential acquisitions.”
Part of the investment policy is to add cryptocurrencies on its balance sheet. Last month, GameStop bought 4,710 bitcoins, worth more than half a billion dollars.
The stock tanked more than 15% in premarket trading following the announcement.
GameStop
GameStop is following in the footsteps of software company MicroStrategy, now known as Strategy, which bought billions of dollars worth of bitcoin in recent years to become the largest corporate holder of the flagship cryptocurrency. That decision prompted a rapid, albeit volatile, rise for Strategy’s stock.
Strategy has issued various forms of securities including convertible debt to fund its bitcoin purchases.
CEO Ryan Cohen recently said GameStop’s decision to buy bitcoin is driven by macro concerns as the digital coin, with its fixed supply and decentralized nature, could serve as protection against certain risks.
The brick-and-mortar retailer reported a decline in fiscal first-quarter revenue on Tuesday as demand for online gaming rose. Its revenue dropped 17% year-over-year to $732.4 million.
The shares fell 6% on Wednesday after those results. Wall Street appears uncertain it can mimic the success of MicroStrategy.
Wedbush analyst Michael Pachter reiterated his underperform rating on GameStop Wednesday, saying the meme stock has consistently capitalized on “greater fools” willing to pay more than twice its asset value for its shares. The Wedbush analyst believes the bitcoin buying strategy makes little sense as the company, already trading at 2.4 times cash, isn’t likely to drive an even greater premium by converting more cash to crypto.
-
Economics6 days agoJobs report May 2025:
-
Economics1 week agoElon Musk’s failure in government
-
Economics6 days agoDonald Trump has many ways to hurt Elon Musk
-
Finance6 days agoStocks making the biggest moves midday: WOOF, TSLA, CRCL, LULU
-
Economics6 days ago
Donald Trump has many ways to hurt Elon Musk
-
Economics4 days agoSending the National Guard to LA is not about stopping rioting
-
Blog Post5 days agoMastering Bookkeeping Tasks During Peak Business Seasons
-
Personal Finance4 days agoWhat Pell Grant changes in Trump budget, House tax bill mean for students