US Fed officials expect slower rate cuts in 2025, minutes from December | Inflation news
Minutes from the December meeting show divisions over the decision to cut interest rates, with the 0.25 percent cut being “narrow”.
At their Dec. 17-18 meeting, US Federal Reserve officials expect to slow the pace of interest rate cuts this year in the face of persistently high inflation and the threat of widespread tariffs and other potential policy changes.
Minutes of the meeting, released Wednesday after a typical three-week delay, also showed a clear division among the Fed’s 19 policymakers. Some expressed support for keeping the central bank’s key rate unchanged, the minutes said. And most officials said the decision to cut rates was a close call.
Ultimately, the Fed decided so reduce the key rate by a quarter of a point to around 4.3 percent. One official, Cleveland Fed President Beth Hammack, disagreed in favor of keeping rates unchanged.
Still, there was widespread agreement that after cutting rates for three consecutive meetings, it was time to take a more deliberate approach to their key rate.
A smaller cut in interest rates is likely to mean that borrowing costs for consumers and businesses – including for homes, cars and credit cards – will remain high this year.
Policymakers said the Fed “was at or near the point where it would be appropriate to slow the pace of policy easing,” the minutes said. In projections released after the meeting, Fed officials said they expected just two cuts next year, down from a previous projection of four.
Trump’s tariffs
The minutes also showed that “nearly all” Fed policymakers see a greater risk than before that inflation could remain higher than they expected, in part because inflation has held up in several recent readings and because of “the likely effects of potential changes in trade and immigration policy”.
Fed staff economists viewed the economy’s future path as particularly uncertain at the December meeting, in part because of “potential changes in trade, immigration, fiscal and regulatory policies” from President-elect Donald Trump’s administration, which staff said were difficult to assess in terms of how will affect the economy. As a result, they included several different scenarios of the economy’s future path in their presentation to policymakers.
The staff predicted inflation this year would be about the same as 2024 because they expected Trump’s proposed tariffs to keep inflation high.
Stock markets plummeted after Fed officials scaled back their outlook for interest rate cuts last month. Fed Chairman Jerome Powell said at a news conference after the meeting that the decision to cut rates was a “close call.”
Powell also said that recent signs of stubborn inflation have led many Fed officials to lower their expectations for rate cuts. According to the Fed’s preferred measure, inflation rose to 2.4 percent in November from a year earlier, above the Fed’s 2 percent target. Excluding the volatile categories of food and energy, it was 2.8 percent.
In addition, some officials have begun to consider the potential impact of Trump’s proposals, such as widespread tariffs, on the economy and inflation next year, the minutes said.
Economists at Goldman Sachs, for example, estimated that Trump’s tariff proposals could increase inflation by nearly half a percent later this year.
Earlier on Wednesday, Fed Governor Christopher Waller said he still supports a rate cut this year, in part because he expects inflation to move steadily down to the Fed’s target. He also said he did not expect the tariffs to worsen inflation and would not change his preference for lowering borrowing costs.
In a question-and-answer session, Waller also said he doesn’t think Trump will end up imposing the universal tariffs he promised on the campaign trail.
