New Delhi [India]: Federal Reserve officials, during their December 17–18 meeting, expressed concerns over persistent inflation and signaled a slowdown in the pace of rate cuts, according to meeting minutes released on Wednesday.
The minutes highlighted uncertainties surrounding U.S. President-elect Donald Trump’s policy plans, including punitive tariffs, deregulation, and mass deportations, which could impact the Federal Reserve’s efforts to stabilize inflation.
“Most participants noted the risks of moving too quickly to ease the stance of policy and emphasized the importance of carefully assessing incoming data in judging whether inflation is moving down sustainably to 2 per cent,” the minutes stated.
Federal Reserve members voted to lower the central bank’s benchmark borrowing rate to a target range of 4.25–4.5%, but policymakers agreed that further cuts would be cautious and data-dependent.
Inflation Challenges and Trade Policy Risks
The Federal Reserve continues to aim for a 2% annual inflation target. While inflation readings remain above this goal, officials remain optimistic due to increased consumer spending, a strong labor market, and robust economic activity in 2024, which indicate potential GDP growth.
Participants, however, expressed caution about the risks posed by shifts in trade policy, including potential tariffs on China and other U.S. trading partners, which could disrupt economic stability.
“Participants generally noted that they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2 per cent,” the minutes added.
Future Outlook on Rate Cuts
Fed officials projected that inflation might not reach the 2% target until 2027. Near-term risks are expected to remain on the upside. Members anticipate two more rate cuts in 2026, with an additional one or two afterward, potentially bringing the rate down to 3%.
“Many participants suggested that it would be appropriate to begin in-depth discussions of balance sheet issues at the Committee’s next meeting to guide an eventual decision to slow the pace of runoff,” the minutes revealed.
The Federal Reserve emphasized that future policy decisions would depend on incoming data and are not tied to a predetermined timeline.