Federal Reserve officials stand their ground December meeting expressed concern about inflation and the impact the newly elected president would have on it Donald Trumppolicy may have had, indicating that they will be slower to introduce interest rate cuts due to uncertainty, minutes published on Wednesday showed.
Without mentioning Trump by name, the meeting summary included at least four references to the impact that changes in immigration and trade policy could have on the U.S. economy.
Since Trump won the November election, he has signaled plans to impose aggressive, punitive tariffs on China, Mexico and Canada, as well as other U.S. trading partners. Moreover, it intends to continue further deregulation and mass deportations.
But the scope of Trump's actions, and specifically how they will be targeted, creates a number of uncertainties about what's to come that members of the Federal Open Market Committee say require caution.
“Almost all participants assessed that the risk of an increase in the inflation outlook has increased,” we read in the minutes. “Participants cited recent, better-than-expected readings on inflation and the likely impacts of potential changes in trade and immigration policies as justification for this ruling.”
FOMC members voted to lower the central bank's benchmark interest rate to a target range of 4.25%-4.5%.
But they also lowered the outlook for expected cuts in 2025 to two from four in the previous estimate September meetingassuming quarter-point increments. Since September, the Fed has lowered the funds rate by one point current market prices indicates only one or two more moves down this year.
The minutes indicated that the pace of coming cuts was indeed likely to be slower.
“In discussing the prospects for monetary policy, participants indicated that the Committee has reached or is approaching the point where it would be appropriate to slow down the pace of monetary policy easing,” the document reads.
Moreover, members agreed that “the interest rate was now much closer to its neutral value than when the Committee began easing monetary policy in September. “In addition, many participants suggested that a number of factors underscore the need for a cautious approach to monetary policy decisions throughout the coming quarters.”
These conditions include inflation readings remaining above the Fed's annual target of 2%, solid momentum in consumer spending, a stable labor market and otherwise strong economic activity in which gross domestic product grew at an above-trend rate through 2024.
“A large majority of participants noted that at this juncture, with a still significantly restrictive policy stance, the Committee was well-positioned to spend time assessing the evolving outlook for economic activity and inflation, including the response of the economy to the Action Committee's past policies,” it said. protocol.
Officials stressed that future policy moves would depend on data developments and would not follow a set timetable. It showed the Fed's preferred indicator core inflation at 2.4% in November and 2.8% after taking into account food and energy prices compared to the previous year. The Fed's 2% inflation target.
In documents distributed at the meeting, most officials indicated that while they expect inflation to decline to 2%, they do not forecast this will happen earlier than 2027 and expect short-term risks to be higher.
At his place press conference following the interest rate decision of 18 December, President Jerome Powell he compared the situation to “driving on a foggy night or entering a dark room full of furniture. You just slow down.”
The statement reflected the thinking of meeting participants, many of whom “noted that the current high degree of uncertainty makes it necessary for the Committee to adopt a gradual approach as it moves towards a neutral political position,” the minutes read.
A “scatter chart” of individual members' expectations showed that they expect two more rate cuts in 2026, and perhaps one or two more after that, which would ultimately bring the long-term federal funds rate down to 3%.