Federal Reserve: Monetary policy report cites “high inflation” due to tariffs

The Federal Reserve released its monetary policy report, in which the US central bank acknowledged that inflation remains elevated and that the labour market is broadly stable, a signal that the price stability goal hasn’t been achieved.

The report noted that inflation rose further in the spring, revealing that economic activity is expanding solidly, despite uncertainty sparked by the Iran war. M2 money supply growth rates “were moderate and broadly similar to the pace typically observed during the 2010s.”

Credit conditions for small businesses and households remained tight, according to the Fed, and Q1 2026 growth was boosted by investment in high tech and government spending.

The Fed revealed that the housing market is stagnant, that the financial system remained sound and resilient, and that asset valuations in stocks, corporate debt, residential and real estate are above historic norms.

Key highlights:

INFLATION REMAINS ELEVATED, DRIVEN BY TARIFFS AND FACTORS RELATED TO MIDDLE EAST WAR, AI

ALREADY STRONG INFLATION TICKED UP FURTHER IN THE SPRING

LABOR MARKET BROADLY STABLE, 'SOLID' NOMINAL WAGE GROWTH HAS BEEN JOINED BY ‘STRONG’ PRODUCTIVITY GAINS

ECONOMIC ACTIVITY EXPANDING AT SOLID PACE DESPITE ELEVATED UNCERTAINTY DUE TO IRAN WAR

M2 MONEY SUPPLY GROWTH RATES WERE MODERATE AND BROADLY SIMILAR TO THE PACE TYPICALLY OBSERVED DURING THE 2010S

LABOR SUPPLY GROWTH DOWN ON IMMIGRATION SLOW DOWN, DEMOGRAPHIC SHIFT

SMALL BUSINESSES AND HOUSEHOLDS CONTINUED TO FACE RELATIVELY TIGHT CREDIT CONDITIONS

FIRST QUARTER 2026 GROWTH BOLSTERED BY HIGH TECH INVESTMENT, GOVERNMENT SPENDING

MEASURES OF LONG-TERM INFLATION EXPECTATIONS ‘BROADLY CONSISTENT’ WITH 2% GOAL

IN MOST CASES, FUNDS IMPOSED REDEMPTION LIMITS, AND PRIVATE CREDIT MARKETS CONTINUED TO FUNCTION NORMALLY

SOME PRIVATE CREDIT VEHICLES FACED NOTABLE INCREASES IN REDEMPTION REQUESTS IN Q1, REFLECTING SOME DEFAULTS AND CONCERNS ABOUT UNDERLYING ASSET QUALITY

ACTIVITY IN HOUSING MARKET HAS BEEN ‘STAGNANT’

STRONG FACTORY OUTPUT DRIVEN BY DATA CENTER INVESTMENT TIED TO AI; US PRODUCTIVE CAPACITY RISING AT 'SOLID PACE'

FOREIGN ECONOMIC ACTIVITY GROWTH WAS SUBDUED IN H1 2026 FROM HEADWINDS FROM MIDDLE EAST CONFLICT

AND US TARIFFS, PARTIALLY OFFSET BY AI INVESTMENT

FINANCIAL SYSTEM REMAINED ‘SOUND AND RESILIENT,’ VULNERABILITIES UNCHANGED

BANK RESERVES REMAIN IN ‘AMPLE’ RANGE AMID RESERVE MANAGEMENT BUYING

ASSET VALUES IN STOCKS, CORPORATE DEBT, RESIDENTIAL REAL ESTATE ABOVE HISTORIC NORMS