Investing.com – Minutes from the Federal Reserve’s latest meeting showed policymakers will adopt a slower pace of interest rate cuts going forward, according to Goldman Sachs analysts.
President-elect Donald Trump’s plans for sweeping tariffs and mass deportations have led to particular uncertainty among Fed staff about the outlook for inflation, minutes from the central bank’s December meeting showed.
Officials were concerned that the recent cooling in price increases could be affected by Trump’s policy changes, adding that the process of bringing inflation down to the Fed’s ultimate target of 2% “could take longer than previously expected.”
Participants noted “steady progress on inflation, but stress[ed] upside risks,” Goldman Sachs analysts said.
Those fears, along with the Federal Open Market Committee already cutting interest rates by a full percentage point in 2024, convinced some members to opt for a “cautious” approach to further cuts this year, the minutes said.
Following the announcement, bets that the Fed will leave borrowing costs unchanged at the next few upcoming meetings have strengthened, with the first tapering now not expected before May at the earliest.
Markets are now looking ahead to Friday’s monthly US jobs report, which could further weigh on Fed staff thinking. On Wednesday, private payrolls data for December slowed, although the weekly number of Americans filing jobless claims fell.
Meanwhile, in a note to clients, Goldman Sachs analysts noted that the minutes did not include a discussion of the Fed’s move to shrink its balance sheet. Some observers have suggested that in 2025 the central bank could halt its drive to reduce its holdings through a process known as quantitative easing, or QT.
“Given the lack of concrete discussions from Fed officials, the continued assessment that reserves remain ample, and the rapid easing of funding pressures at the start of the year, we are pushing back the timing of the second QT taper we expect after the meeting,” Goldman Sachs analysts wrote.
“We now expect the treasury outflow to last until the end of March (from the previous January), but we remain of the view that yes [mortgage-back securities] the second round will end at the end of June.”
