Federal Reserve officials at their December meeting expressed concerns about inflation and the impact that President-elect Donald Trump’s policies could have, indicating they would be slower to cut interest rates due to uncertainty, minutes 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 U.S. economy.
Since Trump’s November election victory, he has signaled plans to impose aggressive, punitive tariffs on China, Mexico and Canada, as well as other U.S. trading partners. In addition, he intends to push for further deregulation and mass deportations.
But the scale of Trump’s actions and, in particular, how they will be directed, creates a layer of ambiguity about what lies ahead that members of the Federal Open Market Committee say will require caution.
“Almost all participants concluded that the risks of rising inflation have increased,” the minutes say. “Participants cited recent stronger-than-expected inflation figures and the likely impact of potential changes in trade and immigration policies as reasons for this decision.”
FOMC members voted to lower the central bank’s benchmark borrowing rate to a target range of 4.25%-4.5%.
However, they also cut their forecast of expected cuts in 2025 to two from four in a previous estimate at their September meeting, suggesting a quarter-point increase. The Fed has cut the funds rate by a full point since September, and current market prices indicates another decline or two this year. Traders are pricing in a nearly 100% chance that the FOMC will remain unchanged at its Jan. 28-29 meeting, according to CME group FedWatch data.
The minutes showed that the pace of upcoming cuts is indeed likely to be slower.
“In discussing the outlook for monetary policy, participants noted that the Committee is at or near the point where it would be appropriate to slow the pace of policy easing,” the document said.
Moreover, members agreed that “the policy rate is now significantly closer to its neutral value than when the Committee began easing policy in September.” the nearest quarters.”
These conditions include inflation rates that remain above the Fed’s annual 2% target, a steady pace of consumer spending, a stable labor market and an otherwise strong economic activity with gross domestic product growing above trend through 2024.
“The vast majority of participants noted that at this stage, when its policy position remains significantly restrictive, the Committee is well positioned to take time to assess the changing outlook for economic activity and inflation, including the economy’s response to the Committee’s previous policies. actions,” the protocol says.
The summary also noted that some members have begun to include policy changes in their forecasts, although how many have done so is unclear.
Officials stressed that future policy moves will depend on how the data develops and will not follow a set schedule. The Fed’s preferred measure showed core inflation at 2.4% in November and 2.8% when factoring in food and energy prices, compared with the previous year. The Fed is targeting inflation at 2%.
In documents presented at the meeting, most officials indicated that while they see inflation falling to 2%, they do not forecast that to happen until 2027 and expect near-term risks to rise.
In his Dec. 18 news conference following the rate decision, Chairman Jerome Powell compared the situation to “driving on a foggy night or walking into a dark room full of furniture. You just slow down.”
The statement reflected that thinking among meeting participants, many of whom “observed 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,” the minutes said.
A “dot plot” of individual members’ expectations showed they expect two more rate cuts in 2026 and perhaps one or two more after that, eventually lowering the long-term federal funds rate to 3%.