Federal Reserve officials expressed concern about inflation and the potential impact of President-elect Donald Trump’s policies during their December meeting, according to minutes released on Wednesday. The uncertainty surrounding Trump’s plans led the officials to indicate a slower approach to interest rate cuts.
The meeting summary highlighted the potential effects of changes in immigration and trade policy on the U.S. economy, without specifically naming Trump. Since his election victory, Trump has proposed imposing aggressive tariffs on China, Mexico, and Canada, as well as pursuing deregulation and mass deportations. However, the lack of clarity surrounding the specifics of these actions has created a sense of ambiguity about the future, prompting caution from the Federal Open Market Committee members.
The minutes revealed that participants believed there were increased upside risks to the inflation outlook, citing stronger-than-expected inflation readings and the potential impact of changes in trade and immigration policy. The FOMC voted to lower the central bank’s benchmark borrowing rate to a target range of 4.25%-4.5%, but revised their outlook for expected cuts in 2025 to two from four.
Despite the rate cut, the pace of future cuts is expected to be slower, with participants indicating that the Committee was approaching a point where it would be appropriate to slow the pace of policy easing. The minutes emphasized the need for a cautious approach to monetary policy decisions in the coming quarters, considering factors such as inflation readings above the Fed’s 2% target, solid consumer spending, a stable labor market, and strong economic activity.
Officials stressed that future policy moves would be data-dependent and not based on a set schedule. While core inflation was running at a 2.8% rate in November, the Fed’s preferred gauge showed inflation at 2.4% when including food and energy prices. Most officials indicated that they expected inflation to gravitate down to 2% by 2027, with near-term risks skewed to the upside.
Chair Jerome Powell likened the current economic situation to “driving on a foggy night or walking into a dark room full of furniture,” indicating the need to proceed cautiously. The “dot plot” of individual members’ expectations showed that they anticipate two more rate cuts in 2026, with the long-run fed funds rate ultimately reaching 3%.
Overall, the minutes from the December meeting underscored the uncertainty surrounding Trump’s policies and the need for a gradual approach to monetary policy decisions in the face of evolving economic conditions.
