The minutes of the December meeting show a split on the decision to cut the prices and the 0.25 per cent cut was a 'close call'.
Officials of the Federal Reserve in the United States at their meeting on December 17-18 are expected to suspend further interest rate cuts this year in the face of persistent inflation and the threat of interest rates and other possible changes.
The minutes of the meeting, released Wednesday after a three-week delay, also showed a split among the Fed's 19 policymakers. Others expressed support for keeping the central bank's interest rate unchanged, the minutes said. And many of the executives said that the decision to cut prices is a close call.
In the end, the Fed decided reduce its essential value and a quarter-point to about 4.3 percent. Another official, Cleveland Fed President Beth Hammack, argued in favor of keeping rates unchanged.
However, there was a general consensus that after cutting prices for three straight meetings, it was time to deliberate on their main strategy.
Lower interest rates could mean that consumer and business borrowing – including mortgages, cars and credit cards – will remain high this year.
Policymakers said the Fed was “at or near the point where it would be appropriate to reduce the pace of policy,” the minutes said. In projections released after the meeting, Fed officials said they expected just two rate cuts next year, down from the previous four.
Trump tariffs
The minutes also indicated that “virtually” all Fed policymakers see a greater risk than before that inflation could be higher than expected, in part because inflation has been present in several recent readings and because of the “potential consequences of changes in the trade and immigration policy”.
Fed economists saw the economic future as particularly uncertain at the December meeting, in part because of “potential changes in trade, immigration, economics, and regulations” coming in under President Donald Trump, which staff said are difficult to assess. about how it will affect the economy. As a result, they included a number of future economic scenarios in informing policy makers.
The officials assumed that inflation this year would be the same as 2024 because they expected Trump's proposed tariffs to continue rising.
Stock markets fell after Fed officials scaled back their views on rate cuts last month. Fed Chairman Jerome Powell said at a press conference after the meeting that the decision to cut rates was a “close call”.
Powell noted that recent signs of rising inflation have led many Fed officials to scale back their expectations for rate cuts. According to the Fed's preferences, inflation reached 2.4 percent in November, compared to a year ago, above the Fed's 2 percent target. Excluding the unchanged shares of food and energy, it was 2.8 percent.
In addition, some officials have begun to consider what will affect the views of Trump, such as prices, on the economy and inflation next year, said the minutes.
Economists at Goldman Sachs, for example, have estimated that Trump's proposals could raise inflation by about half a percentage point by the end of this year.
Earlier on Wednesday, Fed governor Christopher Waller said that he still supports reducing rates this year, mainly because he expects inflation to gradually decrease to the Fed's target. He said he did not expect interest rates to increase inflation and would not change his preference for lower borrowing costs.
In a question-and-answer session, Waller said he didn't think Trump would end up passing the federal tax he promised on the campaign trail.