Fed Minutes Identify Tariffs as Key Inflation Risk, Raising Stakes for Final 2025 Trade Push

WASHINGTON — The Federal Reserve’s internal consensus has fractured significantly over President Donald Trump’s trade policies, with newly released minutes identifying tariff-induced inflation as the primary barrier to further interest rate relief.

Released at 2 p.m. today, the minutes from the December 9–10 policy meeting reveal that anxiety over renewed trade barriers is actively preventing the central bank from aggressively supporting a cooling labor market. The disclosure clarifies the high macroeconomic stakes facing the White House in the final hours of 2025, as the window to finalize a trade agreement with China before the new year all but closes.

While the Fed voted to lower the benchmark rate by 25 basis points to a range of 3.50%–3.75% earlier this month, the decision was the most contentious in six years. Three officials dissented—the highest number since 2019—creating a split that Goldman Sachs economists characterize as "ongoing disagreement" over the immediate policy path.

The Tariff-Inflation Nexus

According to the minutes, the discord inside the Federal Open Market Committee (FOMC) centers on a clash between deteriorating labor data and fiscal policy risks.

"Hawkish" officials argued against further easing, explicitly citing the inflationary potential of President Trump’s tariff agenda. These policymakers expressed concern that lowering borrowing costs while the administration erects new trade barriers could reignite price pressures, potentially forcing the Fed to reverse course in early 2026.

This stance conflicts with internal staff analysis suggesting the economy is weaker than headline numbers indicate. The minutes confirm reports that Fed staff believe recent payroll growth may have been overstated by approximately 60,000 jobs per month.

For market observers monitoring the probability of a U.S.-China tariff agreement by the December 31 deadline, the Fed's stance offers a stark reality check: without a formalized trade deal to stabilize cost expectations, the central bank is unlikely to provide the cheap capital the administration desires.

Markets Pricing in a Pause

The confirmation that trade policy is effectively handcuffing the Fed has triggered a swift reaction in financial markets. Futures traders are now pricing in an approximate 84% probability that the Fed will pause its easing cycle in January.

The logic is clear: unless the administration can mitigate the inflationary threat of tariffs—potentially through finalized agreements or individualized exemptions rather than broad extensions—the Fed will be forced to hold rates steady to counteract the rising cost of imports.

With the economy showing conflicting signals of resilience in GDP but weakness in hiring, the Fed’s hesitation places the burden squarely on the White House’s trade negotiators. A failure to secure a definitive agreement on tariffs before the year ends could leave the U.S. economy exposed to both high interest rates and trade-war-induced price shocks entering the first quarter of 2026.