The Federal Reserve grappled with inflation concerns and economic uncertainty tied to President-elect Donald Trump’s proposed tariffs and immigration policies during its December meeting.
According to minutes from the Dec. 17-18 session, officials noted that recent inflation readings and the anticipated effects of potential trade and immigration changes could extend the timeline for achieving the central bank’s 2% inflation target.
“Most participants remarked that … the Committee could take a careful approach in considering” further rate cuts, the minutes said, signaling a cautious stance on monetary easing.
Fed staff warned that the incoming administration’s policies might slow economic growth and raise unemployment, projecting slightly lower GDP growth and a higher unemployment rate compared to previous forecasts.
Despite this uncertainty, the Federal Open Market Committee proceeded with a quarter-point rate cut last month.
The decision was described as “finely balanced,” with some members questioning the need for further reductions given stalled progress in disinflation and rising inflation risks.
“Several observed that the disinflationary process may have stalled temporarily or noted the risk that it could,” the minutes added.
Fed Governor Christopher Waller emphasized that additional rate cuts would depend on forthcoming inflation data.
“I believe that inflation will continue to make progress toward our 2% goal over the medium term and that further reductions will be appropriate,” Waller said.
U.S. stocks closed relatively flat on Wednesday, reflecting mixed investor sentiment amid conflicting jobs data and reports of a potential economic emergency declaration by Trump.
Interest rate futures markets suggest the Fed will hold its policy rate steady in the 4.25%-4.50% range at upcoming meetings, with a potential cut as early as May.
“Everyone’s in wait-and-see mode over the next few weeks,” said David Russell, global head of market strategy at TradeStation.
“The Fed is no longer data-dependent. It’s now Trump-dependent.”