Fed minutes for January 2025:

Federal Reserve officials raised concerns about inflation and the potential impact of President-elect Donald Trump’s policies at their December meeting, indicating they will move more slowly to cut interest rates amid uncertainty, minutes released Wednesday showed.

Without mentioning Trump by name, the summary of the meeting made at least four references to the impact that changes in immigration and trade policy could have on the US economy.

After Trump’s November election victory, he announced plans to impose aggressive, punitive tariffs on China, Mexico and Canada, as well as other US trading partners. In addition, he intends to continue deregulation and mass deportations.

However, the scope of Trump’s actions, and specifically how they will be targeted, creates uncertainty about what lies ahead, and caution is warranted, according to members of the Federal Open Market Committee.

“Practically all participants expressed the opinion that the risk of raising the inflation forecast has increased,” the report says. “Participants cited recent stronger-than-expected inflation figures and the likely impact of potential changes in trade and immigration policy as reasons for this view.”

FOMC members voted to cut the central bank’s benchmark borrowing rate to a target range of 4.25%-4.5%.

However, at the September meeting they also lowered their forecast for expected cuts in 2025 to two out of four in their previous estimate, suggesting an increase of a quarter of a point. The Fed has cut the funds rate by a full point since September, and current market prices point to only one or two more steps lower this year.

The minutes indicated that the pace of contraction ahead is likely to be slower indeed.

“Discussing the outlook for monetary policy, participants indicated that the Committee is at a point where it is appropriate to slow the pace of policy easing,” the document says.

Moreover, members agreed that “the policy rate is now much closer to its neutral value than when the Committee began easing policy in September. In addition, many participants suggested that various factors underscore the need for a cautious approach to monetary policy decisions over the coming quarters.

These conditions include inflation readings that remain above the Fed’s annual target of 2%, a solid pace of consumer spending, a stable labor market and other strong economic activity, with gross domestic product growing above trend through 2024.

“A large majority of participants noted that at this time, with its policy stance still significantly restrictive, the Committee was well placed to take the time to assess the changing outlook for economic activity and inflation, including the economy’s response to the Committee’s previous policies. actions,” says the report.

Officials stressed that future policy moves will depend on how the data unfolds and are not on a set timeline. The Fed’s leading indicator showed that core inflation was 2.8% in November and 2.4% after adjusting for food and energy prices. The Fed’s inflation target is 2%.

In documents distributed at the meeting, most officials said that while they see inflation falling to 2%, they don’t see that happening until 2027 and expect risks to rise in the near term.

In his Dec. 18 news conference after the bid was passed, 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 mindset of the meeting’s participants, many of whom “noted 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 “dotted graph” of individual participants’ expectations showed that they expect two more rate cuts in 2026 and possibly one or two more after that, eventually bringing the long-term funds rate down to 3%.