US Federal Reserve officials expressed concern that they could face a challenging decision if President Donald Trump's tariffs bring a surge in inflation, according to minutes from the US central bank's May meeting, released on Wednesday.
The May 6-7 meeting minutes showed central bankers felt a heightened degree of uncertainty for the economic outlook, largely because of tariffs.
As a result, Fed officials decided to leave rates unchanged at about 4.3 per cent. The Central Bank of the UAE announced it had also left its rate unchanged after the US central bank's decision.
Fed officials also saw rising risks to both sides of their dual mandate: price stability and maximum employment.
"The committee might face difficult trade-offs if inflation proves to be more persistent while the outlooks for growth and employment weaken,” minutes from the meeting read.
And "almost all” officials said inflation could be more persistent than expected, while also highlighting the importance of keeping longer-run inflations in check.
"Participants judged that downside risks to employment and economic activity and upside risks to inflation had risen, primarily reflecting the potential effects of tariff increases,” the minutes read.
Mr Trump's tariff agenda has created a dilemma for the Fed. Economists argue tariffs could lead to higher inflation – which the Fed would counter with higher interest rates – and a weakening employment situation – which the central bank would counter with lower interest rates.
Minutes from the May meeting underscore the cautious approach Fed officials are taking in response to Mr Trump's changing tariff decisions.
Trade tension between the US and China abated a few days after the Fed meeting, with Washington and Beijing agreeing to a 90-day pause on most tariffs.
The US and UK also agreed to a trade deal this month. On Sunday, Mr Trump said he would delay a 50 per cent tariff on the EU until July 9, just 48 hours after pledging to impose the new charges on the 27-member bloc.
Since their most recent meeting, officials have largely echoed Fed chairman Jerome Powell's assertions that they need more clarity before deciding when to lower rates again.
And inflation is still running above the Fed's 2 per cent target.
"These arguments support a stance of maintaining the policy rate … until there is more clarity on the path for tariffs and their impact on prices and economic activity,” Minneapolis Fed president Neel Kashkari said in Tokyo on Tuesday.
The Fed will hold its next two-day meeting from June 17-18, when the central bank will release updated projections on officials' outlook for inflation, employment and economic growth. Officials will also update their projected interest rate target range.
Projections released in March showed a median forecast of two rate cuts for 2025.
