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Federal Reserve officials said the U.S. central bank will need to take a “cautious approach” by cutting interest rates further due to the growing risk that inflation will remain persistently above its 2 percent target.
In minutes of the Fed’s December meeting released Wednesday, officials noted high policy uncertainty as Donald Trump’s second presidency is about to begin, and indicated that the pace of rate cuts might start to slow down or even stop.
“Participants indicated that the committee was close to the point where it would be appropriate to slow the pace of policy easing,” the minutes said.
“Most participants noted that, with the monetary policy stance now significantly less restrictive, the committee could take a cautious approach in considering adjustments to the monetary policy stance,” the lawsuit states. verbal.
In December, the Fed lowered its main interest rate by a quarter point, to 4.25-4.5 percent, one point less than in September. But officials predict there will be only two more cuts in 2025, and the U.S. central bank could pause its rate-cutting cycle when it meets later this month.
Fed officials’ caution about future rate cuts is driven by wariness over the U.S. inflation outlook, with economists concerned that Trump’s plans for tariffs, of tax cuts and immigration accelerate the rise in prices again.
According to the minutes, Fed officials believed that “the likelihood that high inflation could be more persistent had increased” – and posed a central risk to the outlook.
“Participants expected inflation to continue trending toward 2 percent, although they noted that recent higher-than-expected inflation figures and the effects of potential changes in trade policy and immigration authorities suggested that the process might take longer than expected,” the minutes said.
However, some officials indicated they still expected a fairly aggressive easing of U.S. monetary policy and dismissed concerns about the impact of tariffs.
“I will support further reductions in our policy rate in 2025,” Fed Governor Christopher Waller said Wednesday in a speech at the OECD in Paris, adding that he did not expect this. that tariffs have a “significant or persistent” impact on inflation. .
“The extent of further easing will depend on what the data tells us about progress towards 2 percent inflation, but my basic message is that I think more cuts will be appropriate,” he said. , referring to the Fed’s inflation target.
U.S. government bond markets were little changed after the minutes were released, with the two-year Treasury yield flat at 4.29 percent and the benchmark 10-year yield up 0.01 point. percentage at 4.7 percent.
In the stock markets, the S&P 500 closed up 0.2 percent. After Wednesday’s minutes, investors were betting that the central bank would make the first quarter-point rate cut of the year by July, in line with prices set earlier in the day.
