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Federal Reserve officials indicated that the US central bank will need to take a “cautious approach” to further interest rate cuts because of the growing risk that inflation will remain persistently above its 2 per cent target. cent.
In minutes from the Fed’s December meeting released Wednesday, officials pointed to heightened policy uncertainty as Donald Trump’s second presidency gets underway and indicated that the pace of rate cuts could begin to slow or even slow. it stops.
“Participants indicated that the committee was at or near the point at which it would be appropriate to slow the pace of policy easing,” the minutes said.
“Most participants noted that, with the stance of monetary policy now significantly less restrictive, the committee could take a cautious approach in considering adjustments to the stance of monetary policy,” the minutes said.
In December, the Fed cut its key interest rate by a quarter point to 4.25-4.5 percent, a full point lower than in September. But officials predicted there would be just two additional cuts in 2025 and the US central bank could halt its rate-cutting cycle at its meeting later this month.
Fed officials’ caution about future rate cuts is fueled by caution about the outlook for U.S. inflation, given concern among economists that Trump’s plan for tariffs, tax cuts and immigration could accelerate price increases again .
According to the minutes, Fed officials believed that “the possibility that elevated inflation could be more persistent had increased” — and was a central risk to the outlook.
“Participants expected inflation to continue to move toward 2 percent, although they noted that recent higher-than-expected readings on inflation and the effects of possible changes in trade and immigration policy suggested that the process could take longer more than previously anticipated. “, the minutes say.
However, some officials have signaled they still expect US monetary policy to be loosened aggressively enough and dismissed concerns about the impact of tariffs.
“I would support continuing to cut our policy rate into 2025,” Christopher Waller, a Fed governor, said in remarks at the OECD in Paris on Wednesday, adding that he did not expect rates to have a “significant impact or continuous” in inflation. .
“The extent of further easing will depend on what the data tell us about progress towards 2 percent inflation, but my main message is that I believe more cuts will be appropriate,” he said, referring to the target of Fed inflation.
US government bond markets were little changed after the release of the minutes, with the two-year Treasury yield at 4.29 percent and the benchmark 10-year yield up 0.01 percentage point at 4.7 percent.
In equity markets, the S&P 500 closed 0.2 percent higher. After Wednesday’s minutes, investors were betting the central bank would deliver its first quarterly rate cut of the year by July, in line with prices earlier in the day.
