Consumer spending has remained strong but the economic data may not yet reflect the full effects of tariffs, according to the minutes from the Federal Open Market Committee’s May 6-7 meeting. The committee voted to maintain the federal funds rate at 4.25%-4.5% at the meeting. The minutes show that FOMC members debated how much President Trump’s tariff policies may weigh on consumers.
“Several participants noted that factors such as elevated economic uncertainty and a possible decline in real disposable income due to tariff-related increases in prices could lead to increased precautionary saving and reduced consumer demand,” according to the minutes. “A couple of participants noted that a deterioration in financial market sentiment could also weigh on consumer demand.
“Regarding factors that might mitigate negative effects of tariffs on consumer spending, a few participants observed that the strength in the balance sheets of many households could help them absorb a tariff-induced reduction in their purchasing power; lower energy prices might help lessen strains on households’ budgets; and households might shift spending from goods to services, which are likely to be less affected by tariffs,” the minutes state.
