At their December meeting, the Federal Reserve was concerned about inflation and the impact President-elect Donald Trump's policies could have, indicating they would move more slowly on interest rate cuts due to uncertainty, minutes of the meeting released Wednesday showed.
Without mentioning Trump by name, the summary of the meeting included at least four references to the impact that changes in immigration and trade policy could have on the US economy.
Since Trump won the presidential election in November, he has signaled plans to impose tough punitive tariffs on China, Mexico and Canada as well as other US trading partners. In addition, he intends to pursue further deregulation and mass deportations.
However, the extent of Trump's actions and specifically how they will be directed creates a scope of uncertainty about what is coming, which Federal Open Market Committee members said requires caution.
“Almost all participants viewed upside risks to inflation expectations as having increased,” the minutes said. “As reasons for this judgement, participants cited stronger-than-expected recent readings on inflation and the potential impacts of potential changes in trade and immigration policy.”
Members of the Federal Open Market Committee voted to lower the central bank's benchmark borrowing rate to a target range of 4.25% to 4.5%.
However, they also lowered their forecast for cuts expected in 2025 to two from four in the previous estimate at the September meeting, assuming quarter-point increases. The Fed has cut a full point of its funds rate since September, and current market prices suggest only one or two declines this year.
The minutes indicated that the pace of future cuts is likely to be slower indeed.
“In discussing the outlook for monetary policy, participants indicated that the Committee was at or near the point at which it would be appropriate to slow the pace of policy easing,” the document said.
Furthermore, members agreed that “the interest rate is now much closer to its neutral value than it was when the Committee began easing monetary policy in September. In addition, many participants noted that a variety of factors underscore the need for a careful approach.” in monetary policy decisions over the past few months.
These conditions include inflation readings that remain above the Fed's annual target of 2%, a strong pace of consumer spending, a stable labor market and strong economic activity as GDP grows at an above-trend rate through 2024.
“A large majority of participants noted that the Committee, at the current stage, where its policy position remains largely constrained, is well placed to devote time to assessing the evolving outlook for economic activity and inflation, including the economy’s responses to previous Committee policy actions,” it said. The record.
Officials stressed that future policy moves will depend on how the data emerges and that they are not on a specific timeline. The Fed's preferred measure showed core inflation at 2.8% in November and 2.4% when food and energy prices are included. The Federal Reserve targets inflation at 2%.
In documents distributed at the meeting, most officials noted that while they expect inflation to fall to 2%, they do not expect that to happen now until 2027 and expect near-term risks to be on the upside.
In his press conference following the interest rate decision on December 18, Chairman Jerome Powell likened the situation to “driving on a foggy night or walking into a dark room full of furniture. Just slow down.”
The meeting minutes stated that this statement reflects the mindset of the meeting participants, many of whom “noted that the current high degree of uncertainty makes it appropriate for the Committee to take a gradual approach as it moves toward a neutral policy position.”
A “dot chart” of individual members' expectations showed that they expect two more rate cuts in 2026 and perhaps another cut or two after that, eventually bringing the long-term federal funds rate down to 3%.
