FOMC minutes show Fed remains cautious on rate cuts amid inflation and tariff risks

The Federal Reserve is in no hurry to cut interest rates, according to minutes from its March meeting. While economic growth remains solid and the labour market is holding up, policymakers expressed growing concern over persistent inflation and the potential impact of tariffs.

Officials continued to view inflation as “somewhat elevated” and noted that recent data had come in hotter than expected, particularly in core non-housing services and goods. Participants also flagged rising near-term inflation expectations, attributing part of the increase to announced or anticipated tariffs.

“Almost all participants pointed out that many market- or survey-based measures of near-term expected inflation had increased recently,” the minutes stated, though they emphasized that long-run expectations remained “well anchored.”

While officials acknowledged signs of softening in consumer sentiment and spending, they also cited the ongoing strength of the labour market.

Still, they warned of a “high degree of uncertainty” around the outlook, driven by fiscal, trade and immigration policy developments.

Rate cuts not imminent

Despite investor hopes for cuts later this year, the minutes offered little signal of urgency.

“Participants assessed that the Committee was well-positioned to wait for more clarity on the outlook for inflation and economic activity,” the minutes said, reinforcing the Fed’s patient stance.

Some officials warned that inflationary pressures could prove more persistent—especially if tariff increases are broader or stickier than expected. Others noted that restrictive immigration policies might ease housing-related inflation by dampening demand.

Markets had already adjusted, with futures now pricing in fewer rate cuts than earlier this year.

The minutes confirmed that most participants believe current restrictive policy allows the Fed to hold steady while it monitors incoming data.

In a widely expected move, the Fed also agreed to slow the pace of balance sheet runoff starting in April, trimming the monthly cap on Treasury redemptions from $25 billion to $5 billion. Officials stressed the move was technical and “had no implications for the stance of monetary policy.”

The next interest rate decision is scheduled for May 7.

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Last modified: April 9, 2025

Steve Huebl

Steve Huebl is a graduate of Ryerson University's School of Journalism and has been with Canadian Mortgage Trends and reporting on the mortgage industry since 2009. His past work experience includes The Toronto Star, The Calgary Herald, the Sarnia Observer and Canadian Economic Press. Born and raised in Toronto, he now calls Montreal home.