U.S. Consumer Confidence Sees Biggest Decline in Nearly Four Years Amid Trump's Tariff Concerns

Fed FOMC Minutes: Tariffs Add to Economic Uncertainty

The Federal Reserve released the minutes of its March FOMC meeting on April 10. Key highlights are as follows: Inflation Outlook Further Obscured by Tariff Policy The March FOMC meeting minutes indicated that while housing-related prices are moderating, non-housing core components remain elevated, and core goods prices have rebounded—potentially reflecting expectations that tariffs will drive up costs. Most officials believe that price fluctuations this year will be increasingly driven by tariffs. Some regional contacts have already reported rising input costs and are preparing to pass those costs on to consumers. However, some officials noted that excess household savings have been depleted, and immigration constraints could dampen rental demand—both factors that could cap inflation. Overall, distinguishing between a structural price adjustment and a temporary tariff shock is becoming increasingly difficult. Moreover, the inflationary impact of tariffs could prove persistent, depending on the extent of tariffs on intermediate goods, the complexity of supply chain restructuring, the intensity of trade partner retaliation, and the degree to which long-term inflation expectations remain anchored. Labor Market Remains Balanced, but Uncertainty Weighs on Outlook On the labor front, officials generally viewed the labor market as balanced, with unemployment staying low and wage growth moderating but remaining solid. However, federal spending cuts have begun to impact government contractors, universities, and healthcare institutions. Some firms reliant on public sector partnerships have reported layoffs or hiring freezes. In addition, rising uncertainty stemming from tariffs and other policy variables has weighed on both household and business confidence, which could further suppress consumption and investment. The minutes highlighted that downside risks to both labor markets and economic growth are growing, alongside increasing upside risks to inflation. Divergence Within the Fed on Slowing Balance Sheet Reduction SOMA managers reported that due to the debt ceiling impasse, the Treasury General Account (TGA) has declined, while reserve balances and the Overnight Reverse Repo (ON RRP) facility have rebounded. Excluding the debt ceiling issue, ON RRP usage has essentially been exhausted. If the debt ceiling is resolved, replenishing the TGA could rapidly deplete reserves, and markets may not be able to signal these changes in advance. Therefore, slowing the pace of balance sheet reduction (QT) was seen as an appropriate and effective strategy. While all officials agreed that continuing QT is directionally correct, a majority supported slowing its pace. However, some members argued that existing tools are sufficient to handle liquidity volatility, and that there is insufficient justification for pausing QT. Summary The minutes underscored that heightened uncertainty surrounding tariff policy has intensified downside risks to the economic outlook, while the inflationary effects of tariffs could be persistent—making the future trajectory of inflation increasingly difficult to predict. Although the Trump administration has delayed most reciprocal tariffs for 90 days, tariffs on Chinese imports have been raised to 125%, and 25% duties are still being imposed on steel, aluminum, and automobiles, while a 10% tariff remains in place for all countries. As a result, the effective tariff rate is projected to rise by approximately 20 percentage points, posing continued upside risks to inflation. Consequently, the Federal Reserve is likely to maintain a cautious stance and adopt a gradual approach to adjusting interest rates.