WASHINGTON (AP) — At their meeting on Dec. 17-18, Federal Reserve officials anticipated reducing the pace of interest rate cuts due to concerns about persistent inflation and potential policy changes, including the threat of tariffs. The meeting minutes, released after the standard three-week delay, revealed a split among the 19 Fed policymakers. While some favored keeping the central bank’s key rate steady, a majority viewed the decision to cut rates as a close call.
Ultimately, the Fed opted to lower its key rate by a quarter-point to around 4.3%, with one dissenting vote from Cleveland Fed President Beth Hammack in favor of maintaining rates. The officials recognized the need for a more cautious approach to rate adjustments after three consecutive cuts. They indicated that a rate cut is unlikely at the upcoming January meeting, which implies that borrowing costs for consumers and businesses may stay relatively high this year.
The minutes highlighted that most Fed policymakers believed it was time to ease the pace of policy easing, with projections suggesting only two rate cuts in the following year. There was growing concern among officials about the risk of inflation exceeding expectations, worsened by potential changes in trade and immigration policies. The Fed’s staff economists expressed uncertainty about the future economic trajectory, citing challenges in assessing the impact of incoming policy changes under the Trump administration.
Fed Chair Jerome Powell’s remarks during a subsequent news conference contributed to a market downturn, as he emphasized the close nature of the decision to reduce rates. Stubborn inflation trends, including a November increase to 2.4% year-over-year, prompted a reassessment of rate cut expectations. Some officials also began considering the potential effects of President-elect Trump’s proposed policies, such as tariffs, on inflation and economic conditions.
In light of these developments, Fed officials are reevaluating their stance on rate cuts and inflation projections, aiming to strike a balance between economic stability and inflation control.
Don’t expect tariffs to worsen inflation and won’t change his preference for lowering borrowing costs. Waller also said, in a question-and-answer session, that he didn’t think Trump would ultimately impose the universal tariffs he promised in the campaign.
