The Fed meeting notes that trade policy is a bigger drag on economic activity than expected

The Fed meeting notes mentioned that the staff's projections for real GDP growth in 2025 and 2026 are lower than those made at the March meeting because announced trade policy means that there will be a greater drag on actual economic activity relative to the policies assumed by the staff in previous projections. Trade policy is also expected to cause slower productivity growth, which will reduce potential GDP growth in the coming years. The output gap is expected to widen significantly over the forecast period as the drag on demand is expected to start earlier and be more responsive than supply. The labor market is expected to weaken significantly, with the unemployment rate forecast to be higher than the staff's estimate of the natural rate of unemployment through the end of the year and remain above it through 2027.