Fed officials at their Dec. 17-18 meeting expected to reduce the pace of interest rate cuts this year in the face of persistently rising inflation and the threat of widespread tariffs and other potential policy changes. .
Minutes of the meeting, released after a typical three-week delay, also showed clear divisions among the Fed's 19 policymakers. According to the minutes, some officials expressed support for keeping the central bank's key policy interest rate unchanged. And a majority of officials said the decision to cut rates was a close call.
Ultimately, the Fed opted to cut its key policy rate by a quarter of a percentage point, to about 4.3%. One of the officials, Cleveland Federal Reserve President Beth Hammack, opposed keeping rates unchanged.
Still, minutes of the meeting broadly agreed that Fed officials felt it was time to take a more cautious approach to key interest rates after three consecutive meetings of rate cuts.
Fewer interest rate cuts are likely to mean borrowing costs for consumers and businesses, including for homes, cars and credit cards, will remain high this year.
According to the minutes, policymakers said the Fed was “at or near the point where it is appropriate to slow the pace of policy easing.” In the forecast released after the meeting, A Fed official said: Only two projects are expected to be cut next year, down from the original forecast of four.
The minutes also said that “nearly all” Fed policymakers cited persistent inflation in several recent surveys and “the likely impact of potential changes in trade and immigration.” It also indicated that it recognized a greater risk than previously that inflation could remain higher than expected. policy. “
Fed staff economists considered the future path of the economy particularly uncertain at the December meeting, in part due to “potential trade, immigration, fiscal, and regulatory policy changes” by the incoming Trump administration. Staff said these were difficult to assess. What impact do they have on the economy? As a result, they included several different scenarios for the future path of the economy in their presentations to policymakers.
And staff expected inflation to be about the same this year as 2024, as they expect President Trump's tariff proposals to keep inflation high.
Stock markets fell sharply on December 18 after Federal Reserve officials lowered their outlook for interest rate cuts. Fed Chairman Jerome Powell said in a post-meeting press conference that the decision to cut interest rates was a “close call.”
Powell also said that recent signs of stubborn inflation have caused many Fed officials to backtrack on expectations for rate cuts. Inflation rose to 2.4% year over year in November, exceeding the Fed's target, according to the Fed's recommended metrics. Excluding the volatile food and energy categories, it was 2.8%.
Additionally, some officials have begun considering the potential impact of President-elect Trump's proposals, including broad tariffs, on the economy and inflation next year, according to the minutes.
Economists at Goldman Sachs, for example, estimate that President Trump's tariff proposals could boost inflation by nearly half a percentage point later this year.
Earlier Wednesday, Fed Governor Christopher Waller said he still supports lowering rates this year, in part because he expects inflation to move steadily toward the Fed's 2% target. He also said he does not expect the tariffs to worsen inflation and remains committed to lowering borrowing costs.
Waller also said during the Q&A that he doesn't think Trump will end up imposing the universal tariffs he promised during his campaign.
