The Federal Reserve
Employment was a focal point for the Federal Reserve’s most recent monetary policy deliberations, with officials expressing various levels of concern about its outlook.
Policymakers were united in their view that interest rates should remain unchanged during last month’s Federal Open Market Committee meeting, but divides were apparent on several key considerations and the group’s path ahead, according to minutes released Wednesday afternoon.
The minutes, which summarize discussions from the two-day meeting in loose terms, note that a “few participants” viewed labor market risks as “having become predominant.” These views were based, in part, on conversations with business contacts who said they had put hiring on pause in response to rising economic uncertainty.
The FOMC is the Fed’s monetary policy-setting arm. It is composed of the seven members of the Federal Reserve Board in Washington and the presidents of the 12 regional reserve banks. It sets the target range for the federal funds rate, which determines bank-to-bank overnight lending costs.
During last month’s meeting, Fed staff concluded that labor market conditions were strong, with unemployment still near historic lows at 4.2%. But, they added, the workforce participation rate had declined and wages have grown more slowly this year than last.
Most of the 19 Federal Reserve Board governors and reserve bank presidents believed new tariff policies would drag down labor demand to some degree, though with different expectations about the timing and severity of such a hiring slowdown.
The overall impact of new tariffs was a wedge issue between FOMC participants during their May meeting.
As part of the Fed’s so-called dual mandate — keeping prices stable and employment as robust as possible — the FOMC’s evaluation of the labor market is a key input into its monetary policymaking. But meeting participants expressed differing views about which side of its mandate was under greater pressure.
“Some participants commented that they saw the risk of elevated inflation as remaining more prominent, or as having diminished by less, than risks to employment,” the minutes state. “A few participants saw risks to the labor market as having become predominant. They noted some recent signs of weakening in real activity or the labor market, or commented that conditions could weaken in the future, particularly if policy were to remain restrictive.”
If employment is deemed to be the bigger risk, that could result in the Fed easing monetary policy, as lower interest rates are seen as supporting hiring. According to the minutes, some participants made the case for such a move at the next FOMC meeting on July 29 and 30.
Since the meeting, Fed Vice Chair for Supervision Michelle Bowman and Fed Gov. Christopher Waller have made public statements in support of a July rate cut. Both cited the importance of bolstering a weakening labor market.
Yet, while the minutes note that “most” participants support some policy easing this year, some saw the “most likely appropriate path of monetary policy as involving no reduction in the policy range” in 2025. In fact, the number of participants projecting no change to the Fed’s policy rate by year-end increased from four in March to seven in June.
Participants also discussed a potential offset to weaker hiring: restrictive policies on immigration. “Several participants” noted that crackdowns on unauthorized border crossings and mass deportations were reducing the overall labor supply.
Whether these trends offset one another and the degree to which they impact prices remain to be seen. The committee viewed uncertainty across multiple policy fronts — including trade, immigration, government spending and regulation — as reasons for holding rates unchanged.
In an analyst note released Wednesday afternoon, Jeffrey Roach, chief economist with LPL Financial, said the minutes paint a picture of a committee still committed to a wait-and-see approach to policymaking.
“Despite headwinds, the economy continues to trudge along, giving policymakers time to assess the projected impact from tariffs,” Roach said, adding that markets are largely expecting the Fed to hold steady once again this month. “Next week’s inflation data will likely show a reacceleration, giving the Fed more reason to keep rates elevated. We don’t expect inflation readings will improve until later this year.”
