Fed Officials Express Caution on Interest Rates Amid Inflation Concerns

Federal Reserve officials are increasingly apprehensive about the inflationary impacts stemming from President-elect Donald Trump’s policies, as revealed in the minutes from their latest meeting. The policymakers underscored their commitment to a cautious approach regarding interest rate cuts, citing the uncertainty that Trump's actions have injected into the economic landscape.

During the meeting, it was made clear that the pace of interest rate cuts would likely be slower than initially anticipated. Since September, the Federal Reserve has already reduced the federal funds rate by a full percentage point. However, current market indicators suggest that only one or two additional rate cuts are expected this year.

The Federal Reserve has a target inflation rate of 2%. Nonetheless, recent data presents a more complex picture. The Fed's preferred inflation gauge showed core inflation running at a 2.4% rate in November. When including food and energy prices, this figure rose to 2.8%. These numbers highlight the ongoing challenges the Fed faces in maintaining price stability.

A substantial majority of participants in the meeting noted that the Committee is well-positioned to take its time to assess the evolving outlook for economic activity and inflation. The "dot plot" of individual members' expectations indicated that they foresee two more rate cuts by 2026, with the possibility of one or two additional cuts following that timeline. Moreover, members expect the long-run federal funds rate to stabilize at around 3%.

The Committee recently voted to lower the central bank's benchmark borrowing rate to a target range of 4.25% to 4.5%. This adjustment reflects a more cautious stance compared to previous estimates. In fact, the outlook for expected cuts in 2025 was revised down from four to two since September's meeting.

The minutes also emphasized the importance of evaluating economic conditions carefully. Chair Jerome Powell likened the current situation to "driving on a foggy night or walking into a dark room full of furniture," illustrating the uncertainty that looms over economic forecasts and policy decisions.