Fed minutes send strong message on interest-rate cuts

Interest rates aren’t going anywhere—maybe. Minutes from a meeting of the Federal Reserve Bank leaders, which was held in early May and released on May 29, show the central bank voted to undertake open market operations “as necessary” to maintain the federal funds rate in a target range of 4.2% to 4.50%.

In a related action, the Board of Governors of the Federal Reserve System voted unanimously in early May to approve the establishment of the primary credit rate at the existing level of 4.5% – which means interest rates for lenders, consumers and the rest of Americans won’t be budging in the near term, much to the dismay of the Trump administration.

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The minutes of its May 6-7 meeting, known as the Federal Open Market Committee, released May 29, also showed the central bank would allow “modest deviations from stated amounts for reinvestments, if needed for operational reasons.” “We are comfortable with our policy stance,” Federal Reserve Bank President Jerome Powell said at a May 7 press conference.

This stance “will be updated as appropriate to reflect decisions of the Federal Open Market Committee or the Board of Governors regarding details of the Federal Reserve's operational tools and approach to implement monetary policy,” the central bank said.

The Federal Reserve minutes show the Fed is cautious about interest rate changes.

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Here’s what the FOMC minutes show

The Federal Reserve has a dual mandate to target low inflation and unemployment. It can raise interest rates to slow inflation, but that can cause unemployment. Or it can cut rates to boost job growth, but that can cause inflation.

The information available at the time of the May meeting indicated that consumer price inflation remained somewhat elevated.

The unemployment rate had stabilized at a relatively low level since the middle of last year, but reported real GDP growth stepped down markedly in the first quarter of 2025.

Total consumer price inflation—as measured by the 12-month change in the price index for personal consumption expenditures (PCE)—was 2.3% in March.

Core PCE price inflation is the Fed's favorite inflation measure. It excludes changes in consumer energy prices and many consumer food prices. It was 2.6% in March, above the Fed's 2% target. Both total and core inflation were lower than their year-earlier levels.

Recent data indicated that labor market conditions had remained solid but have worsened over the past year. The unemployment rate was 4.2% in March and April, equal to its average over the second half of 2024, but up from 3.4% in 2023.

Average hourly earnings for all employees rose 3.8% over the 12 months ending in April, little changed from a year ago.

According to the advance estimate, real GDP declined 0.3% in the first quarter. However, this first-quarter estimate was likely affected by measurement issues.

Based on available data, the outsized increase in imports did not seem to be fully matched by corresponding increases in other spending categories, including inventory investment, resulting in a small decline in estimated real GDP.

Canada, Mexico reflect weakening indicators

Indicators of foreign economic activity pointed to a moderate pace of expansion in the first quarter, likely supported in part by front-loaded demand from U.S. importers in anticipation of tariff hikes.

However, more recent indicators suggested weakening momentum, notably in Canada and Mexico, amid elevated uncertainty about global trade policies.

Inflation abroad was near central bank targets in most foreign economies, in part reflecting lower energy prices. By contrast, Chinese inflation remained quite subdued.

The European Central Bank, the Bank of Mexico, and several central banks in emerging Asia eased monetary policy, citing in part the prospective drag on domestic growth from U.S. tariffs. In their communications, foreign central banks also emphasized the need to maintain policy flexibility amid heightened uncertainty.

When might interest rates move?

Goldman Sachs’ Roger Kaplan, former Federal Reserve Bank of Dallas president, said May 29 that he didn’t think the Fed would move interest rates in June or July.

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However, as clarity evolves around the U.S. tariff instability and unemployment remains steady, Kaplan said he would look for a possible cut come September.

“There’s a chance of it,” Kaplan said in an interview with CNBC on May 29. But he noted that the Fed’s current status was “the right thing to do,” and that it was “wise” to be patient.

More information regarding open market operations and reinvestments may be found on the Federal Reserve Bank of New York's website.