Federal Reserve Meeting Minutes: The Drag of Trade Policy on Economic Activity is Greater than Expected

ChainCatcher message, the Federal Reserve's meeting minutes mentioned that staff forecasts for actual GDP growth in 2025 and 2026 are lower than the predictions made at the March meeting, as the announced trade policies imply that actual economic activity will be more significantly hampered compared to the policies assumed in previous forecasts.

It is expected that trade policies will also lead to a slowdown in productivity growth, thereby reducing potential GDP growth in the coming years. Due to the anticipated earlier onset of demand drag, which is expected to be greater than the response of supply, the output gap is expected to widen significantly over the forecast period. The labor market is expected to weaken substantially, with the unemployment rate projected to be higher than staff estimates of the natural rate of unemployment by the end of this year, and to remain above the natural rate until 2027.