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Federal Reserve officials suggested the U.S. central bank needs to take a “cautious approach” to further rate cuts as there is a growing risk that inflation will remain above its 2% target.
In minutes of the December Fed meeting released Wednesday, officials noted heightened policy uncertainty as Donald Trump’s second term in office looms. He suggested that the pace of rate cuts could begin to slow or even be paused.
“Delegates recognized that the Committee is at or near the point where it would be appropriate to slow the pace of policy easing,” the minutes said.
“Most participants agreed that the stance of monetary policy has not become significantly more restrictive, and the Committee may take a cautious approach when considering adjustments to the stance of monetary policy,” the minutes said. ” he said.
The Fed cut its key interest rate by 4.5 percentage points in December to 4.25% to 4.5%, 1 percentage point lower than in September. But officials expect only two more rate cuts in 2025, and the U.S. central bank could pause the rate-cutting cycle when it meets later this month.
Fed officials are cautious about future interest rate cuts due to concerns among economists that President Trump’s tariffs, tax cuts and immigration plans could cause prices to rise again. is in the background.
Fed officials believe that “higher inflation is now more likely to persist,” the minutes said, making this a central risk to the outlook.
“While participants expected inflation to continue trending toward 2%, recent higher-than-expected inflation figures and the impact of potential changes in trade and immigration policy have slowed this process. “It has been suggested that this may take longer than previously anticipated,” the minutes said.
But some officials dismissed concerns about the impact of tariffs, suggesting they still expect U.S. monetary policy to be eased fairly aggressively.
“We support continuing to lower policy rates in 2025,” Fed Director Christopher Waller said Wednesday in a speech at the OECD in Paris, adding that tariffs would have a “significant or persistent” impact on inflation. He added that he did not expect it to be granted.
“The extent of further easing will depend on what the data shows about progress toward 2% inflation, but my basic message is that we need more rate cuts,” he said, referring to the Fed’s inflation target. “I believe that is appropriate,” he said.
There was little change in the U.S. Treasury market after the minutes were released, with the yield on the two-year Treasury note unchanged at 4.29% and the yield on the benchmark 10-year Treasury note rising 0.01 percentage point to 4.7%.
In the stock market, the S&P 500 ended up 0.2%. Following Wednesday’s minutes, investors were betting that the central bank would deliver its first 15th rate cut of the year by July, in line with its pricing earlier in the day.
