The minutes of the last meeting of the United States Federal Reserve (Fed)in which many members of the monetary authority stressed the need for a “more cautious approach” for the coming quarters.
They also expressed that they expect inflation to continue its journey to 2%, but that disinflation could take longergiven the possible changes that are coming in international trade.
That is why in the Fed minutes it was highlighted that one of the concerns is the possibility that Trump imposes tariffs and new inflationary pressures are generated.
Participants indicated that if their projections are confirmed, it would be appropriate continue gradually moving towards a more neutral political stance.
Despite this, participants anticipated that labor market conditions would remain strong but projected slightly lower GDP growth and a slightly higher unemployment rate than the previous baseline forecast, after incorporating recent data and baseline assumptions about possible policy changes by the incoming administration.
Some participants noted there was merit in keeping rates unchanged at that meeting, citing a heightened risk of persistently high inflation. But the vast majority of participants considered appropriate to reduce the target rate range by 25 basis points at the December meeting.
Fed: what projections are there for 2025
The minutes describe the Federal Open Market Committee’s December rate cut as “finely balanced,” with some participants noting the “merits” of not reducing borrowing costs in light of what they saw progress in reducing inflation stalling.
Given future uncertainty and the full percentage point of reductions already made to the benchmark interest rate in 2024, “participants indicated that the Committee was at or near the point at which it would be appropriate to slow the pace of monetary policy easing.” “, according to the minutes.
“Most participants noted that … the Committee could take a cautious approach when considering” further cuts.
The minutes showed policymakers faced with a suddenly tangled set of new influences in an economy that begins the year with relatively low unemployment, strong growth and inflation that remains above the 2% targetbut is expected to decrease.
Fed staff “highlighted the difficulty” of guessing what awaits a government that has promised to deport undocumented immigrants, tighten borders and raise taxes on imported goods, but said it could lead to slower growth and rising unemployment.
“After incorporating recent data and preliminary assumptions about possible policy changes, real GDP growth was projected to be slightly lower than in the previous baseline forecast, and the unemployment rate was expected to be slightly higher “the minutes said of staff assessments of policies that could begin with the return of President-elect Donald Trump.
In addition to higher tariffs, volatile trade relations and strict immigration rules, Trump, who takes office on January 20, also promised looser regulations for businesses and tax cuts.
Monetary policymakers say it will take time to determine the net impact of those policies on growth, employment and inflation.
It is expected that The Fed will keep the official interest rate in the current range of 4.25%-4.50% at its meeting on January 28 and 29.
Source: Ambito
