Fed officials cautious on rate cuts; inflation outlook uncertain amid policy changes and economic recovery, expect steady rates ahead.
The written account of the Dec. 17-18 policy meeting indicated that officials anticipate inflation will likely continue moving towards the central bank’s 2% target, though the process may take longer due to potential changes in trade and immigration policy.
The minutes reflected that a significant majority of the 19 officials believed a quarter-point rate cut was appropriate. However, some officials advocated for holding rates steady, indicating that the decision to cut was a narrow call.
Additionally, officials expressed comfort with the idea of maintaining current rates at the upcoming meeting. The minutes noted that the committee was nearing the point where a slower pace of policy easing would be fitting.
Recent projections from last month revealed growing uncertainty regarding the number of future rate cuts. A majority forecasted two cuts within the year, reduced from four in earlier projections.
Officials are considering two key developments: firmer inflation readings and the potential impact of new tariffs under President-elect Trump. Most participants acknowledged that risks to the inflation outlook had increased.
The Fed’s economic forecast suggested that anticipated tariff changes could result in higher inflation before a subsequent decline.
As they navigate these uncertainties, officials are assessing what constitutes a “normal” interest rate. They have reduced rates by one percentage point since September but remain unclear on the appropriate level to support economic growth without reversing progress on inflation.
Interest-rate futures markets imply the Fed is likely to maintain rates until May or June.
