The minutes of the Federal Reserve meeting conveyed a signal of slowing interest rate cuts. Many people said that caution is needed in the coming quarters.

By: HSEclub NewsJan 09, 2025

Against the backdrop of rising inflation risks, Federal Reserve officials have taken a new accommodative stance and plan to slow down the pace of interest rate cuts in the coming months.

The Federal Open Market Committee (FOMC) meeting on December 17-18 showed that "participants said that the committee was at or close to the time when it was appropriate to slow down the pace of policy easing, and many participants believed that a variety of factors highlighted the need for caution in monetary policy decisions in the coming quarters."

In the minutes, they mentioned inflation data, stronger consumer spending, and downside risks to the labor market and economic outlook.

Fed researchers also included a "placeholder assumption" that President-elect Trump might adjust policies, leading them to expect economic growth to slow slightly and inflation to remain strong.

The minutes showed that "some" policymakers said they had included a "placeholder assumption" in their latest economic forecasts, and almost all participants believed that the upside risks to the inflation outlook had increased.

Officials expect the U.S. job market to remain solid. However, they generally pointed out that labor market indicators deserve close attention.


The U.S. Bureau of Labor Statistics will release the December nonfarm payrolls report on Friday.

Fed Chairman Powell said at a press conference after the December interest rate meeting that the December vote was more evenly matched than in previous rate cuts.

The minutes said some participants said there was merit in keeping the federal funds rate target range unchanged, and most participants noted that their judgment on appropriate policy actions at this meeting was delicately balanced.

Cleveland Fed President Beth Hammack dissented from the December rate cut decision and preferred to keep rates unchanged, and the latest forecasts showed that three other officials held the same opinion. Fed Governor Michelle Bowman voted against a 50 basis point rate cut in September and she would like to see a smaller rate cut.


Uncertainty

The personal consumption expenditures (PCE) price index, the inflation measure favored by the Fed, rose 2.4% year-on-year in November, and the core PCE price index rose 2.8%. Several Fed officials have hinted since the December meeting that they are not in a hurry to cut rates and hope to see more evidence that inflation has stabilized.

Federal Reserve Governor Lisa Cook said on Monday, "The labor market has been somewhat more resilient since September, and inflation has been more stubborn than I assumed at the time, so I think we can proceed more cautiously in subsequent rate cuts."

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