Fed Officials Signal Slower Rate Cuts in 2025 Amid Trump Policy Concerns and Inflation Risks

The Federal Reserve released minutes from its December 17-18 meeting on Wednesday, revealing a cautious stance on future rate cuts and growing concerns about inflation risks, particularly in light of President-elect Donald Trump’s anticipated policy changes.

In their final meeting of 2024, Fed officials voted 11-1 to implement a 25 basis point rate cut, bringing the target range to 4.25%-4.5%. Cleveland Fed President Beth Hammack stood as the lone dissenter, preferring to maintain existing rates. The decision, described as “finely balanced” in the minutes, reflects a significant shift in the Fed’s approach to monetary policy.

The minutes unveiled a substantial revision to the Fed’s rate-cut projections for 2025, with officials now anticipating only two rate reductions instead of the four forecasted in September. This adjustment stems from persistent inflation concerns and uncertainties surrounding the incoming administration’s economic policies. The Fed’s preferred inflation measure showed a core rate of 2.4% in November, with overall inflation at 2.8% when including food and energy prices, both remaining above the central bank’s 2% target.

A key focus of the discussion centered on the potential economic impact of Trump’s proposed policies. While not directly naming the President-elect, the minutes repeatedly referenced concerns about upcoming changes in trade and immigration policies. Officials expressed particular worry about how new tariffs and immigration restrictions might affect inflation and economic growth. Some economists, including those at Goldman Sachs, have estimated that proposed tariffs could increase inflation by approximately half a percentage point later this year.

Market response to the Fed’s more cautious stance has been notable. According to the CME FedWatch Tool, investors are pricing in a nearly 90% probability that the Fed will maintain current rates at its January meeting. This market positioning suggests limited upside potential for the US Dollar, with investors likely to await the December jobs report before making significant moves.

The minutes also indicated that policymakers believe they are approaching or have reached a point where slowing the pace of policy easing would be appropriate. Many participants emphasized the need for a careful approach to monetary policy decisions in upcoming quarters, citing the current restrictive policy stance and the need to evaluate the economy’s response to previous policy measures.

Looking ahead, the Fed appears well-positioned to take a measured approach to policy adjustments. Officials stressed that future decisions would be data-dependent rather than following a predetermined schedule. Current projections suggest inflation may not align with the 2% target until 2027, with near-term risks tilted toward higher inflation