The Federal Reserve released the minutes of the December 17-18 Federal Open Market Committee (FOMC) meeting late Wednesday. At the meeting, policymakers cut rates to a target range of 4.25%-4.5%, marking the second consecutive cut of 25 basis points. The US dollar showed a muted reaction to the minutes.
The Fed is worried that Trump’s policies will increase inflation
At the Fed’s last meeting in 2024, policymakers expressed concern about inflation and the negative impact President-elect Donald Trump’s policies could have on inflation. Trump has promised to impose trade tariffs on key US trading partners, including China, Mexico and Canada, and has also called for mass deportations of illegal immigrants.
The Fed minutes did not mention Trump by name, but the address was unmistakable, and policymakers expressed concern about inflation because of the “likely effect of potential changes in trade and immigration policy.” This concern was mentioned several times in the minutes and it was stated that almost all members agreed that the risks of inflation have increased.
The Fed plans to slow the pace of easing
On monetary policy, members said the Fed is “at or near the point” of slowing the pace of easing. This repeated the Fed’s forecast at its December meeting, which reduced the expected number of cuts in 2025 to two, compared to four cuts in the September forecast. Currency markets reacted sharply after the December rate forecast, with the US dollar posting a sharp rise against major currencies. In contrast, the US dollar showed limited reaction to the Fed minutes.
The takeaway from the record is that the Federal Reserve is concerned about the potential Trump effect on inflation and will be cautious about its rate policy in the near term. According to the minutes, there was “a need for a careful approach to monetary policy decisions in the coming quarters.”
US dollar rises on edge, stocks steady after Fed minutes
The US dollar shows a muted reaction to the Federal Reserve minutes, with slight gains against major currencies. The exception is the British pound, which fell sharply. The GBP/USD currency pair fell 0.9% on Wednesday and fell to 1.2237 earlier on Thursday, its lowest level since November 2023.
In the US, major stock indexes were largely unchanged on Wednesday, showing little movement after the Fed minutes.
The S&P 500 rose 9.22 points (0.16%) to close at 5,918.25.
The Nasdaq 100 index rose by 7.92 points (0.037%) to close at 21,180.96.
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