FOMC Minutes Reveal Fed’s Confidence in U.S. Economy Despite Market Turmoil

May 2025 — Washington D.C.
Despite a weakening U.S. dollar and a steepening Treasury yield curve, the Federal Reserve’s latest FOMC minutes reveal that policymakers remain confident in the strength of the U.S. economy and labor market.

According to the minutes from the May 6–7 meeting, the Fed acknowledged recent market volatility, a decline of over 2% in the dollar, and rising long-term Treasury yields, but still saw no urgent need for policy intervention.

“Economic activity continued to expand at a solid pace and labor market conditions remained strong,” the minutes stated, even though inflation stayed somewhat elevated.

📉 Markets React to Trade Tariffs and Liquidity Concerns

The Fed pointed to heightened uncertainty stemming from the Trump administration’s unexpected tariff increases. These trade policy changes were viewed as a negative supply shock, leading to revised GDP forecasts, increased inflation expectations, and a growing fear of recession within the next six months.

The Treasury market saw a sharp decline in liquidity right after the April 2 tariff announcement but later showed signs of recovery. Fed officials emphasized that, despite these challenges, markets continued to function efficiently.

⚖️ Balanced Yet Cautious Stance

While risks to employment and economic activity have risen, Fed officials remain cautious about altering the current monetary policy. The target federal funds rate remains unchanged at 4.25% to 4.5%, with officials opting for a wait-and-see approach.

“Participants agreed it was appropriate to remain cautious amid elevated uncertainty around fiscal, trade, and immigration policies,” the minutes noted.

🟡 Gold Prices React

In response to the Fed’s cautious tone, gold prices briefly turned positive, reclaiming the $3,300 level, with spot gold trading at $3,301.70 per ounce, up 0.03% on the session.