US Fed officials expected slower rate cuts in 2025, December minutes | Inflation news

The minutes of the December meeting show a split over the decision to cut interest rates, and the 0.25 percent cut was a “close call.”

US Federal Reserve officials are expected to reverse the pace of interest rate cuts this year at their Dec. 17-18 meeting amid persistently rising inflation and the threat of widespread tariffs and other potential policy changes.

Minutes of the meeting, released Wednesday after a typical three-week delay, also showed a clear division among the Fed’s 19 policymakers. The minutes say that some have supported keeping the central bank’s key interest rate unchanged. And most officials said the decision to cut rates was a close call.

In the end, the Fed chose it reduced its base rate increased by a quarter point and amounted to about 4.3 percent. One official, Cleveland Fed President Beth Hammack, favored keeping the rate unchanged.

Still, after cutting rates for three straight meetings, there was widespread agreement that it was time for a more thoughtful approach to their base rate.

Lower interest rates are likely to mean borrowing costs for consumers and businesses, including for homes, cars and credit cards, will remain high this year.

Policymakers said the Fed was “at or near the point where it would be appropriate to slow the pace of policy easing.” In forecasts released after the meeting, Fed officials said they expected just two cuts next year, down from four previously forecast.

Trump tariffs

The minutes also showed that “virtually all” Fed policymakers see a greater risk than previously that inflation could remain higher than they expected, in part because inflation has remained at several recent readings and because of “the likely effects of potential changes in trade and immigration.” policy”.

Fed economists said at their December meeting that the economy’s future path was uncertain, partly because it was difficult to assess “potential changes in trade, immigration, fiscal and regulatory policies” by President-elect Donald Trump’s administration. in terms of how they will affect the economy. As a result, they included several different scenarios for the future path of the economy in their presentations to policymakers.

The staff projected inflation this year to be about the same as in 2024, as they expected Trump’s proposed tariffs to keep inflation high.

Stocks fell sharply after Fed officials cut their rate cut forecasts last month. Fed Chairman Jerome Powell said at a news conference after the meeting that the decision to lower the interest rate was a “close call”.

Powell also said recent signs of stubborn inflation have caused many Fed officials to scale back their expectations for rate cuts. Inflation, the Fed’s preferred measure, rose to 2.4 percent in November from a year earlier, above the Fed’s 2 percent target. Excluding volatile food and energy categories, it was 2.8 percent.

In addition, some officials have begun to consider the potential impact of Trump’s proposals, such as sweeping tariffs, on the economy and inflation next year, the minutes said.

For example, economists at Goldman Sachs have estimated that Trump’s tariff proposals could increase inflation by about half a percentage point later this year.

Earlier Wednesday, Fed Governor Christopher Waller said he still supported interest rate cuts this year as he expected inflation to continue to fall toward the Fed’s target. He also said he did not expect the tariffs to worsen inflation and would not favor lower borrowing costs.

During the question-and-answer session, Waller also said he doesn’t think Trump will ultimately implement the universal tariffs he promised on the campaign trail.