Federal Reserve officials expressed concern at their December meeting about inflation and the impact that President-elect Donald Trump’s policies could have, and suggested they would be slower to cut interest rates because of the uncertainty, according to Wednesday’s report published minutes.
Without mentioning Trump by name, the summary of the meeting included at least four mentions of the impact that changes in immigration and trade policies could have on the U.S. economy.
Since Trump’s election victory in November, he has announced plans for aggressive tariffs against China, Mexico and Canada, as well as other US trading partners. He also wants to promote more deregulation and mass deportations.
But the scale of Trump’s actions, and particularly the manner in which they are being directed, raises a number of ambiguities about what lies ahead, and members of the Federal Open Market Committee said caution is warranted.
“Almost all participants believed that upside risks to the inflation outlook had increased,” the minutes said. “Participants cited recent stronger-than-expected inflation readings and the likely impact of possible changes in trade and immigration policies as reasons for this ruling.”
FOMC members voted to cut the central bank’s key interest rate to a target range of 4.25% to 4.5%.
However, they also reduced their forecast for expected cuts in 2025 to two from four in the previous estimate at the September meeting, assuming quarter-point increments. The Fed has cut interest rates by a full percentage point since September, and current market prices suggest there will only be one or two more cuts this year.
The minutes indicated that the pace of future cuts would actually be slower.
“In discussing the outlook for monetary policy, participants indicated that the Committee was at or near the point at which it would be appropriate to slow the pace of monetary easing,” the document said.
In addition, members agreed that “the key interest rate was now significantly closer to its neutral value than when the Committee began easing monetary policy in September.” Additionally, many participants suggested that a variety of factors influenced the The need for a careful approach to monetary policy decisions underlines the coming quarters.
Those conditions include inflation levels that remain above the Fed’s annual 2% target, a solid pace of consumer spending, a stable labor market and otherwise strong economic activity with gross domestic product growing above trend through 2024.
“A clear majority of participants noted that at this time, with its policy stance still clearly hawkish, the Committee is well placed to take time to assess the evolving outlook for economic activity and inflation, including business responses to the Committee’s previous policies,” the minutes said.
Officials emphasized that future policy actions depend on how data develops and do not follow a set timetable. The Fed’s preferred indicator showed core inflation at 2.4% in November and 2.8% when food and energy prices were taken into account, compared with a year earlier. The Fed’s inflation target is 2%.
In documents handed out at the meeting, most officials said that while they expect inflation to fall to 2%, that will not happen before 2027 and that near-term risks are tilted to the upside.
At his press conference following the tariff decision on December 18, 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.”
That statement reflected the thinking of meeting participants, many of whom “observed that the current high level of uncertainty made it appropriate for the committee to take a step-by-step approach while moving toward a neutral policy stance,” the minutes said.
The “dot plot” of individual members’ expectations showed that they expect two more rate cuts in 2026 and possibly one or two more after that, which would ultimately lead to a cut in the long-term policy rate to 3%.
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