According to the minutes of the latest Federal Open Market Committee meeting, most Federal Reserve officials now see inflation as the bigger threat compared to a weakening labour market. A polite way of saying: “Forget jobs, our real fear is that tariffs and Trump’s political circus might just reignite price pressures.”
Out of the 18 policymakers, a majority concluded that the risk of rising inflation outweighed concerns about slowing employment. Their rate projections remain unchanged at 4.25–4.5%, citing “uncertainty” as the economic slowdown in the first half of the year collides with the inconvenient reality of stubbornly high inflation.
Of course, not everyone is singing from the same hymn sheet. A few policymakers fretted about the labour market, and Governors Christopher Waller and Michelle Bowman went so far as to dissent, citing a weakening jobs backdrop. Powell, ever the careful tightrope walker, reassured in his press conference that tariff-driven inflation might be “temporary”, but added the caveat that the Fed must “guard against persistence.” Translation: he doesn’t believe it either, but the Fed must look serious.
The real argument in the room was whether tariffs are just a one-off shock or the opening chapter of a longer inflationary saga. Several participants expressed concern that inflation has remained comfortably above 2% for far too long, thereby raising the risk that expectations could become unanchored. In other words, if you tell people long enough that 2% is the goal while running at 4%, eventually they stop believing you.
Meanwhile, wage data and job revisions painted a bleaker picture: hiring slowed to its weakest pace since the pandemic, unemployment crept up to 4.2%, and mass downward revisions revealed the “resilient” jobs market wasn’t so resilient after all. But the Fed, ever loyal to its dual mandate, has decided inflation is the bogeyman worth fighting harder than unemployment.
Enter Donald Trump. Never one to miss an opportunity, he has again demanded rate cuts, this time while calling for Fed Governor Lisa Cook’s resignation on the back of a conveniently timed allegation of mortgage fraud. He’s also lining up candidates to replace Powell when his term ends in May, cheerfully turning central bank independence into a farce. Scott Bessent, one of the hopefuls, has already called for a half-point cut by September. Investors, naturally, are pricing it in. Because why not gamble when the referee is being swapped mid-game?
The minutes also reveal a nod to financial stability risks, with several members warning about “elevated asset valuations.” A masterclass in understatement, given that Wall Street is already trading like rate cuts are guaranteed, regardless of whether inflation ever returns to target.
In sum, the Fed finds itself in a familiar bind: boxed in by politics, haunted by inflation, and staring at a weakening jobs market it pretends to care about. The official narrative is that “risks are balanced.” The reality? Inflation terrifies them more, tariffs keep muddying the waters, and the White House is breathing down their necks. Independence, meet irrelevance.