Federal Reserve officials at their December meeting expressed concern over inflation and the impact that President-elect Donald Trump’s policies could have, indicating that they would be moving more slowly on interest rate cuts because of the uncertainty, minutes released Wednesday showed.
While none in the Federal Open Market Committee (FOMC) took Trump’s name, minutes have shown that at least four mentions were made about the impact that changes in immigration and trade policy could have on the US economy.
“Participants expected that inflation would continue to move toward 2%, although they noted that recent higher-than-expected readings on inflation, and the effects of potential changes in trade and immigration policy, suggested that the process could take longer than previously anticipated,” read the minutes.
“Several observed that the disinflationary process may have stalled temporarily or noted the risk that it could.”
The FOMC had voted to lower the benchmark borrowing rate to a target range of 4.25%-4.5% at the meeting.
Despite the rate cut, officials reduced their forecast for 2025 interest rate reductions from four to two, indicating that monetary easing would proceed at a slower pace.
FOMC: ‘upside risks to the inflation outlook had increased’
Trump has announced stringent tariffs on China, Mexico, and Canada as well as other US trading partners ever since his victory in November.
Many experts have warned in their commentary of a surge in inflation followed by a veritable decline in US growth going into 2026 if the tariffs and other policies of mass deportations are implemented.
“Almost all participants judged that upside risks to the inflation outlook had increased,” the minutes said.
“As reasons for this judgment, participants cited recent stronger-than-expected readings on inflation and the likely effects of potential changes in trade and immigration policy.“
This concern was driven by stronger-than-expected inflation data and the potential effects of changes in trade and immigration policy.
Core inflation stood at 2.8% in November, while the broader measure, including food and energy, was at 2.4%.
The Fed targets a 2% inflation rate but does not expect stabilization at that level until 2027.
FOMC to take time to assess evolving outlook for economic activity
Minutes indicated that the pace of cuts ahead indeed is likely to be slower.
Fed officials agreed that the policy rate is nearing a neutral stance, where it neither stimulates nor restricts the economy.
This proximity to neutrality underscores the need for a more cautious approach moving forward.
“A substantial majority of participants observed that, at the current juncture, with its policy stance still meaningfully restrictive, the Committee was well positioned to take time to assess the evolving outlook for economic activity and inflation, including the economy’s responses to the Committee’s earlier policy actions,” the minute said.
The decision to slow the pace of rate cuts aligns with the Fed’s data-dependent strategy.
Officials emphasized that future policy moves would hinge on incoming economic data rather than a predetermined schedule.
Chair Jerome Powell likened the current approach to “driving on a foggy night,” advocating for prudence amid the complex landscape.
Strong economy tempers urgency
Despite inflation concerns, several economic indicators remain robust.
Consumer spending has maintained a solid pace, the labor market remains stable, and gross domestic product (GDP) has been growing above trend levels through 2024.
These factors support the Fed’s decision to proceed cautiously while maintaining flexibility to respond to changing conditions.
However, officials acknowledged that the risks to inflation remain skewed to the upside in the near term.
While the committee anticipates inflation will gradually decline, the timeline for achieving the target level of 2% has been pushed back, reflecting persistent challenges.
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