FED: Team Transitory Seemingly In The Minority On FOMC

There was not much that was really new on the inflation outlook in the June minutes vs what we have heard from FOMC participants in the last 3 weeks. Overall, "participants noted that the progress in returning inflation to target had continued even though that progress had been uneven" (and in a nod to the hawks and perhaps a little surprising given decent inflation readings, "a few participants noted that there had been limited progress recently in reducing core inflation.").

• The viewpoints on tariffs' impact on inflation were not particularly novel. The overall - seemingly unanimous - message was that tariffs are "likely to put upward pressure on prices", but there is "considerable uncertainty, however, about the timing, size, and duration of these effects."
• The main language on tariffs being "transitory" is as follows - notice that "a few" thought tariffs would have a one-off impact (slightly more than the "couple" who could support a July cut) - but this was very much portrayed as a minority view: "While a few participants noted that tariffs would lead to a one-time increase in prices and would not affect longer-term inflation expectations, most participants noted the risk that tariffs could have more persistent effects on inflation, and some highlighted the fact that such persistence could also affect inflation expectations."
• On the cautious side of the table, "many" thought it would take "some time" for the rise in tariffs to be reflected in goods inflation, and "several" commented that inflation could be worse if "tariffs disrupted supply chains or acted as a drag on productivity." And additionally, "several" thought firms whose products aren't directly subject to tariffs could raise prices.
• On the more dovish side though, "many" thought the inflation impact could be more limited from the supply side - "if trade deals are reached soon, if firms are able to quickly adjust their supply chains, or if firms can use other margins of adjustment to reduce their exposure to the effects of tariffs".
• And on the demand side, "several participants observed that the pass-through of tariffs might be limited if households and businesses exhibit a low tolerance for price hikes or if firms seek to increase their market share as others raise their prices", with "a few" noting that smaller/tighter-margin businesses may have to pass costs through to a greater degree.
• Taking a more hawkish bent was the discussion of inflation expectations: it appeared consensus on the Committee that "longer-term inflation expectations continued to be well anchored and that it was important they remain so", but it's slightly surprising that so many ("several") were concerned about higher short-term expectations spilling over into near-term inflationary pressures: ("shorter-term inflation expectations had been elevated and that this development had the potential to spill over into longer-term expectations or to affect price and wage setting in the near term").
• In a line of thinking expressed publicly by a few FOMC members, "some" said "that because inflation has been elevated for some time, there was a heightened risk of longer-term inflation expectations becoming unanchored if there is a long-lasting rise in inflation."