03:37 PM EDT, 05/28/2025 (MT Newswires) -- Federal Reserve officials said that tariffs-induced upside risks to inflation could complicate the central bank's monetary policy, especially if labor market conditions weaken, minutes from its May 6-7 meeting showed Wednesday.

At the meeting, the Federal Open Market Committee left its benchmark lending rate unchanged at 4.25% to 4.50% for a third straight time.

"Participants agreed that uncertainty about the economic outlook had increased further, making it appropriate to take a cautious approach until the net economic effects of the array of changes to government policies become clearer," the meeting minutes showed Wednesday. "Participants noted that the committee might face difficult tradeoffs if inflation proves to be more persistent while the outlooks for growth and employment weaken."

US President Donald Trump in April declared a 90-day pause on certain tariffs for countries that didn't retaliate to his reciprocal duties. The US and China recently agreed to suspend most levies on each other's goods for 90 days, while the Trump administration reached a trade deal with the UK. Over the weekend, Trump agreed to extend a 50% tariff deadline for the European Union to July 9 from June 1.

"Participants judged that downside risks to employment and economic activity and upside risks to inflation had risen, primarily reflecting the potential effects of tariff increases," the meeting minutes showed Wednesday. Some policymakers indicated that tariffs on intermediate goods may support "a more persistent" rise in inflation, the document said.

TD Economics said that trade tensions have eased since the FOMC's May meeting, but the ultimate impact of tariff and other policy changes remains uncertain. "We remain of the view that today's still-elevated tariff levels will lead to some softening in domestic spending and upward pressure on inflation through the second half of this year," Thomas Feltmate, senior economist at TD, said in a report published Wednesday.

Markets widely expect the FOMC to again hold interest rates steady next month, according to the CME FedWatch tool.

"In considering the outlook for monetary policy, participants agreed that with economic growth and the labor market still solid and current monetary policy moderately restrictive, the committee was well positioned to wait for more clarity on the outlooks for inflation and economic activity," the minutes showed.