FOMC Holds; Staff Warns Tariff Effects 'Significantly Larger Than Anticipated'

The FOMC unanimously held rates at 4.25–4.50%. Fed staff warned in the May meeting that tariff effects were 'significantly larger and broader than anticipated.' The Fed's dual-mandate was under severe strain: unemployment had risen to 4.2% while tariff-driven inflation kept core PCE at 2.6%. The minutes acknowledged that risks of both higher unemployment and higher inflation had increased simultaneously — the hallmark of a stagflation environment.