The Federal Reserve (Fed) meeting minutes in December showed that officials were concerned about inflation risks and the potential impact of Trump's policies, indicating that they would be cautious in the pace of rate cuts. Although Trump was not directly named, the summary mentioned multiple times the potential impact of changes in immigration and trade policies on the US economy.
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Trump's Policies Raise Inflation Concerns
The minutes showed that Fed officials remained vigilant about the potentially aggressive policies of the Trump administration, particularly changes to immigration and trade policies, including imposing punitive tariffs on China, Mexico, and Canada, deregulation, and implementing large-scale deportation of immigrants.
The specific direction and extent of these actions remain unclear, making the Fed's decision-making highly uncertain. The record indicates that "almost all participants judged that the risks to their inflation projections were weighted to the upside," attributing this to recent inflation data exceeding expectations and the potential impact of policy changes.
Fed Slows the Pace of Rate Cuts
The Fed decided to lower the benchmark interest rate to a target range of 4.25%-4.5% in the December meeting, but reduced its expected rate cuts in 2025 from four to two. The market expects the Fed to make only one or two rate cuts in 2025 and to hold steady in the January 28-29 meeting.
The minutes further indicate that the pace of future rate cuts will slow significantly. The record states that "participants remarked that the Committee was close to a point where it would be appropriate to slow the pace of policy firming." Additionally, officials unanimously believe that the current policy rate is close to neutral, suggesting that more cautious policy adjustments will be needed going forward.
Stable Economic Conditions Strengthen Cautious Stance: Inflation Remains Above Target
Fed officials emphasized that the stability of economic activity is another major consideration for adopting a cautious policy. Although consumer spending remains robust, the labor market is stable, and GDP growth is above trend, inflation remains above the annual 2% target.
The core inflation rate in November was 2.4%, and the overall inflation rate, including food and energy prices, was 2.8%. While the Fed expects inflation to gradually decline to 2%, the record shows that most officials believe this target may not be achieved until 2027.
Policy Adjustments in the Face of High Uncertainty
Fed Chair Jerome Powell compared the current policy decision-making scenario to "driving at night in dense fog" or "walking into a dark room full of furniture" during his December 18 press conference. He noted that in the face of such high uncertainty, the committee has taken a gradual approach to moving towards a neutral policy stance.
This is also reflected in the meeting minutes, with many participants believing that the current high degree of uncertainty requires the committee to act cautiously to assess the evolution of economic activity and inflation.
Future Rate Cut Plans and Long-Term Outlook
The Fed's "dot plot" shows that the committee members expect two more rate cuts in 2026, followed by one or two additional cuts, ultimately lowering the long-term federal funds rate target to 3%. Future policy actions will be data-dependent and not follow a fixed schedule.
In summary, the Fed's meeting minutes indicate that while policy remains accommodative in the short term, future adjustments will be more cautious as the policy rate approaches a neutral level. The balance between inflation risks and economic stability will be a core consideration in the Fed's future policy decisions.
