FOMC MINUTES: Almost all supported keeping the federal funds target range at 3.50-3.75% at this meeting

Policy outlook & rate guidance

• Almost all supported keeping the federal funds target range at 3.50-3.75% at this meeting.
• Most said it was too early to judge how Middle East developments would affect the US economy and policy.
• Many judged rate cuts would likely become appropriate over time if inflation declined as expected.
• A couple said they had pushed the most likely timing of rate cuts further into the future after recent inflation readings.
• Some saw a strong case for two-sided forward guidance, including possible rate rises if inflation stayed above target.
• All agreed policy was not on a preset course and would be set meeting by meeting.
• Most said a prolonged Middle East conflict could weaken labour markets enough to warrant additional rate cuts.
• Many said persistently higher oil prices could keep inflation elevated long enough to justify rate rises.

Staff or dissent

• One preferred a 25 basis point cut, citing a still-restrictive stance, weak labour demand and elevated downside labour-market risks.

Neutral rate & financial conditions

• Almost all generally viewed the policy rate as within a range of plausible estimates of neutral.
• Most expected 2026 growth to be supported by favourable financial conditions.

Inflation views

• Some said further progress on disinflation had been absent in recent months.
• Some said core goods inflation remained too high for sustainable achievement of the 2% objective, partly reflecting tariffs.
• Several said most measures of longer-term inflation expectations remained consistent with the 2% objective.
• Several said near-term inflation expectations had risen in recent weeks, reflecting higher oil prices.
• Most expected tariffs’ effects on core goods prices to diminish this year, though the pace and timing had become more uncertain.
• Several expected slowing housing services inflation to continue putting downward pressure on overall inflation.
• Several expected stronger productivity growth from technology or deregulation to put downward pressure on inflation.
• Some warned longer-term inflation expectations could become more sensitive to energy-price increases after years of above-target inflation.
• The vast majority said progress back to 2% could be slower than previously expected and that risks of persistently above-target inflation had increased.

Labour market & growth

• Most said labour-market data still suggested broad balance, with low job growth roughly matching slower labour-force growth.
• Several highlighted possible labour-market softening, including higher prime-age unemployment, narrow job growth and weaker job-availability surveys.
• Some said firms remained cautious on hiring because of near-term uncertainty and concerns about AI’s longer-term labour-market effects.
• The majority expected unemployment to stay little changed, with low job creation and labour-force growth continuing.
• A couple expected labour-market conditions to soften.
• The vast majority judged employment risks were skewed to the downside.
• Many warned that, with hiring already low, weaker labour demand could push unemployment up sharply.
• Many said firms were likely to delay or reduce hiring in anticipation of AI adoption.
• A few said AI-related lay-offs remained rare or that firms were using AI to augment rather than replace workers.
• Most said a protracted Middle East conflict could weigh on sentiment and further reduce hiring.
• Most expected 2026 GDP growth to remain solid, supported by AI-related investment, fiscal policy or regulatory changes.
• Most warned recent Middle East developments had increased uncertainty and downside risks around growth.

Balance sheet & QT & liquidity

• Several discussed balance-sheet and implementation issues, including how bank liquidity regulations affect reserve demand.
• A couple discussed standing repo operations and supported further study of central clearing.

Housing market and real estate commentary

• Some said housing services price increases had slowed markedly over the past year and were now close to their pre-pandemic pace.

Agricultural commentary

• A couple said farmers were under strain from higher fuel and fertiliser prices linked to the Middle East conflict.

Fiscal commentary

• Most expected 2026 growth to be supported by fiscal policy.