Fed minutes show policymakers see immigration, tariff changes creating inflation uncertainty
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The Federal Reserve’s policymaking arm on Wednesday released minutes from its latest meeting in which central bank officials noted that uncertainty over how Trump’s president-elect the policies that will be implemented affect their prospects for inflation.
The Federal Open Market Committee (FOMC) is tasked with making monetary policy decisions and consists of a rotating group of regional Federal Reserve Bank governors who set the central bank’s target range for the benchmark federal funds rate.
Minutes from the Fed’s December meeting, in which policymakers cut rates by 25 basis points to a range of 4.25% to 4.5%, showed uncertainty among FOMC members about the direction of economic conditions as well as future policy changes . Fed Chairman Jerome Powell noted that tapering was a “closer call” due to stubborn inflation and a softening labor market, adding that the Fed may slow the pace of interest rate adjustments going forward.
“On the outlook for inflation, participants expected inflation to continue to move toward 2 percent, although they noted that recent higher-than-expected inflation readings and the effects of potential changes in trade and immigration policies suggested that the process could take longer than previously expected,” the FOMC minutes said.
The FOMC minutes showed that policymakers see uncertainty about how inflation will move due to Trump’s potential tariffs and immigration changes. (Photo: Ting Shen/Bloomberg via Getty Images / Getty Images)
The minutes added that several participants noted that the process of disinflation may have stalled or was at risk of stalling, leaving inflation above the Fed’s 2% target. The latest consumer price index (CPI) reading was 2.7%, the Fed’s preference inflation gaugeknown as the personal consumption expenditure index (PCE), was 2.4%.
Other participants noted this positive feeling financial markets and the momentum in economic activity could put pressure on inflation, while there was consensus on policy uncertainty surrounding the new administration.
“All participants assessed that uncertainty about the scope, timing and economic effects of potential policy changes affecting trade and immigration has increased,” the FOMC minutes said.
FEDERAL RESERVES LOWER INTEREST RATES BY A QUARTER POINT IN DECEMBER
Federal Reserve Chairman Jerome Powell said after the latest rate cut that the Fed may slow the pace of rate cuts in response to economic conditions. (Photo by Liu Jie/Xinhua via Getty Images / Getty Images)
Trump has called for mass deportations of illegal immigrants and recently dismissed reports that his transition team has softened tariff plans he outlined during the presidential campaign. Economists have expressed concern that the policies could increase pressure on consumer prices, FOMC members noted in the minutes of the meeting.
“Almost all participants assessed that upside risks to the inflation outlook have increased. As reasons for this assessment, participants cited recent stronger-than-expected inflation readings and the likely effects of potential changes in trade and immigration policy“, it is written in the minutes.
Fed watchers noted a high degree of uncertainty in the FOMC minutes regarding the course of interest rates, inflation and economic growth arising from the new administration’s plans.
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Jeffrey Roach, chief economist for LPL Financial, noted, “The word ‘uncertain’ or its derivative is mentioned twelve times in the entire official record of the Federal Open Market Committee. Forcecasters are finding it increasingly difficult to model the path for interest rates, growth and inflation due to uncertainty around Trump’s still-evolving policies.”
