In the early hours of May 29th Beijing time, the Federal Reserve's official website released the minutes of the May monetary policy meeting, hinting at hawkish policy signals. The minutes revealed that policymakers generally perceived the U.S. economic outlook as "unusually uncertain," with rising risks in both inflation and unemployment, making it appropriate to maintain a cautious monetary policy at this time.
During the meeting, the Federal Reserve kept the target range for the federal funds rate unchanged for the third consecutive time at 4.25% to 4.5%. The minutes emphasized that there is no urgency to cut rates until the economic situation becomes clearer. Policymakers noted that uncertainty in trade policy, particularly potential tariff measures by the Trump administration, further complicates the inflation outlook.
The minutes further pointed out that some officials are concerned that tariffs could increase the prices of intermediate goods, thereby intensifying inflationary pressures and causing supply chain disruptions. This situation was previously seen during the pandemic, and similar risks must be vigilantly guarded against.
Simultaneous Rise of Inflation and Unemployment Risks
Almost all attending officials mentioned that inflation might be more persistent than previously expected. Meanwhile, the labor market is also facing downward pressure. Federal Reserve staff predicted that by the end of the year, the U.S. unemployment rate will exceed the natural unemployment rate and may remain above this level until 2027.
Furthermore, due to adjustments in trade policy, the actual GDP growth forecast for 2025 to 2026 has been lowered. The minutes stated that trade uncertainty will not only suppress business and consumer confidence but also reduce productivity, thus dragging down potential GDP growth.
Caution First, Await Clearer Conditions
Federal Reserve officials emphasized the importance of maintaining public confidence in long-term inflation expectations. In the current complex policy and economic context, some officials called for preparedness to make "difficult trade-offs," balancing persistently high inflation with slowing economic growth.
A few officials warned that should economic downside risks materialize, weakened demand might alleviate some inflationary pressures. However, overall, there is still a need to remain highly vigilant about the ripple effects of policy adjustments.
Market Reaction: Stock Markets Weaken Late, Nvidia Surges
Affected by the hawkish minutes, the three major U.S. stock indexes collectively declined late, with the Dow Jones down 0.58%, NASDAQ down 0.51%, and the S&P 500 index declining by 0.56%.
However, in the technology sector, Nvidia's impressive financial report ignited market enthusiasm. Data showed that the company's first fiscal quarter revenue reached $44.1 billion, a year-on-year increase of 69%, far exceeding the market expectation of $43.29 billion. Following the announcement, Nvidia's stock price soared in after-hours trading, with gains of over 6% at one point.
