Federal Reserve Meeting Minutes: Trade Policy's Drag on Economic Activity Greater Than Expected

The Federal Reserve meeting minutes mentioned that staff forecasts for real GDP growth in 2025 and 2026 are lower than those at the March meeting, as announced trade policies imply that, compared to the policies assumed in previous forecasts, actual economic activity will face greater drag. Trade policies are also expected to lead to a slowdown in productivity growth, thereby reducing potential GDP growth in the coming years. As the drag on demand is expected to begin earlier and be greater than the supply response, the output gap is expected to widen significantly over the forecast period. The labor market is expected to weaken considerably, with the unemployment rate forecasted to be above the staff's estimate of the natural unemployment rate by the end of this year and remain above the natural unemployment rate until 2027.