Fed officials expressed concerns about inflation and the potential impact of President-elect Donald Trump’s policies at their December meeting, citing uncertainty as a reason to cut interest rates, according to minutes released Wednesday. He suggested that movement may slow down.
Although President Trump was not mentioned by name, the meeting summary included at least four references to the impact that changes in immigration and trade policy would have on the U.S. economy.
Since winning the election in November, Trump has signaled plans to impose aggressive and punitive tariffs on China, Mexico, Canada and other U.S. trading partners. It also intends to pursue further deregulation and mass deportations.
However, there is some uncertainty about what will happen next, depending on the scope and specific direction of President Trump’s actions, and members of the Federal Open Market Committee said that this requires caution.
“Nearly all participants judged that upside risks to the inflation outlook had increased,” the minutes of the meeting said. “As reasons for this decision, participants cited recent stronger-than-expected readings of inflation and the potential impact of potential changes in trade and immigration policy.”
FOMC members voted to lower the central bank’s benchmark borrowing rate to its target range of 4.25% to 4.5%.
However, at the September meeting, the number of cuts expected in 2025 was lowered from the previous forecast of four to two, based on the assumption that the cuts would be made in quarter-point increments. The Fed has been cutting fund rates across the board since September, and current market prices indicate they will only be cut one or two more times this year.
Minutes indicate that future cuts are likely to be slower than they actually are.
“While discussing the outlook for monetary policy, participants recognized that the Committee is at or near the point where it would be appropriate to slow the pace of policy easing,” the document said. It is written.
Furthermore, members agreed that “policy interest rates are now significantly closer to neutral than when the Committee began policy easing in September.” Furthermore, many participants suggested that a variety of factors underscore the need for a prudent approach to monetary policy-making. The next few quarters. ”
These conditions include inflation that continues to exceed the Fed’s 2% annual target, a steady pace of consumer spending, a stable labor market, and an otherwise strong economy with gross domestic product growing above trend through 2024. Includes activities.
“A substantial majority of participants agreed that, at this time, the Committee’s policy stance remains meaningfully restrictive, and that the Committee should continue to monitor the evolution of economic activity and inflation, including the economy’s response to the Committee’s previous policies. “We are well placed to take the time to assess the prospects for action,” the minutes read.
Officials stressed that future policy moves will depend on data developments and will not follow a set timeline. Core inflation in November was 2.4% from a year earlier, or 2.8% when food and energy prices are included, according to the Fed’s recommended metrics. The Fed’s target inflation rate is 2%.
In a document distributed at the meeting, most officials said they expect inflation to fall to 2%, but do not expect it to do so until 2027, and expect short-term risks to be to the upside. It was shown that
At a press conference after the rate decision on Dec. 18, Chairman Jerome Powell described the situation as “like driving on a foggy night or walking into a dark room full of furniture. You just slow down. ”
This statement reflected the thinking of conference participants, many of whom said, “Given the current level of uncertainty, the Commission will take a gradual approach as it moves toward a neutral policy stance.” “We expressed the view that this was appropriate,” the minutes state.
A “dot plot” of each member’s predictions shows two more rate cuts in 2026, and the possibility of one or two more cuts after that, ultimately bringing the long-term federal funds rate to 3%. This indicates that they expect it to be lowered.
