Federal Reserve officials expressed concerns at their December meeting about inflation and the possible impact of President-elect Donald Trump’s policies, minutes showed Wednesday, indicating they would be slow to cut interest rates due to uncertainty. pace.
The summary of the meeting did not mention Trump by name, but mentioned at least four times the impact that changes in immigration and trade policy could have on the U.S. economy.
Since Trump won the election in November, he has signaled plans to impose aggressive punitive tariffs on China, Mexico and Canada, among other U.S. trading partners. Additionally, he plans to pursue more deregulation and mass deportations.
However, the scope of Trump’s actions, and the specific direction of them, creates a series of ambiguities going forward, and FOMC members said caution is needed.
“Nearly all participants agreed that upside risks to the inflation outlook had increased,” the minutes said. “As reasons for this judgment, participants cited recent stronger-than-expected inflation data and potential changes in trade and immigration policy. possible impact.”
FOMC members voted to lower the central bank’s benchmark borrowing rate to a target range of 4.25%-4.5%.
However, they also lowered their outlook for expected cuts in 2025 to two (assuming a 25 basis point increase) from the previous estimate of four at the September meeting. Since September, the Fed has lowered the funds rate by a full percentage point. Current market pricing It shows there will only be one or two more falls this year. According to CME Group’s FedWatch indicator, traders see a near 100% chance that the FOMC will remain on hold at its Jan. 28-29 meeting.
The minutes showed the pace of cuts may indeed slow.
“In discussing the outlook for monetary policy, participants stated that the Committee was at or near the stage of appropriately slowing the pace of policy easing,” the document said.
Additionally, members agreed that “the policy rate is significantly closer to neutral now than when the Committee began easing policy in September. Additionally, many participants stated that multiple factors underscore the need to approach monetary policy decisions with caution.” sex”. future seasons. “
Those conditions include inflation data remaining above the Fed’s 2% annual target, solid consumer spending, a stable labor market and other strong economic activity, with gross domestic product growing at an above-trend rate through 2024. .
“The overwhelming majority of participants believed that at this stage, as its policy stance remains clearly restrictive, the Committee is well positioned to take the time to assess the changing outlook for economic activity and inflation, including the economy’s response to the Committee’s earlier policies,” “The minutes of the meeting stated.
The summary further noted that some members have begun incorporating policy changes into their forecasts, but it is unclear how many have done so.
Officials stressed that future policy initiatives will depend on how the data unfolds, rather than following a set timeline. The Fed’s preferred indicator showed core inflation in November at 2.4%, compared with the previous year at 2.8% when food and energy prices are included. The Fed’s inflation target is 2%.
In a document distributed at the meeting, most officials said that while they expected inflation to fall to 2%, they did not expect that to happen until 2027 and expected near-term risks to be to the upside.
At a press conference following the Dec. 18 rate decision, Chairman Jerome Powell compared the situation to “driving a car on a foggy night or walking into a dark room full of furniture. You just slow down.” That’s it.”
The statement reflected the mindset of attendees, many of whom “believed that the current high level of uncertainty made it appropriate for the committee to take an incremental approach as it moves toward a neutral policy stance,” the meeting minutes said.
A “dot plot” of individual members’ expectations shows they expect two more rate cuts in 2026, and possibly one or two more after that, ultimately bringing the long-term federal funds rate to 3%.
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