On January 8, 2025, the Federal Reserve released the minutes of the Federal Open Market Committee (FOMC) meeting held on December 17-18, 2024. The minutes revealed a general consensus among Fed officials that the time has come to approach monetary easing with greater caution. Future monetary policy decisions over the coming quarters will require increased prudence. This signals that the Fed is gradually adjusting its policy pace while balancing inflation and economic downside risks.

Rate Cuts May Slow Down

At the December meeting, the Federal Reserve decided to lower the federal funds rate target range by 25 basis points to 4.25%-4.5%. This marked the third consecutive rate cut since September 2024, with a cumulative reduction of 1 percentage point. However, the minutes revealed that participants generally agreed that the current pace of monetary easing might need to slow. Many officials highlighted the complexity of future monetary policy decisions due to factors such as inflation exceeding expectations, robust consumer spending, and the resilience of the labor market.

Diverging Views on Inflation and Economic Outlook

The minutes showed that nearly all participants believed the upside risks to the inflation outlook had increased. Although the overall inflation rate has declined from its 2022 peak, core inflation remains above the Fed’s 2% target. In November, the Personal Consumption Expenditures (PCE) Price Index rose 2.4% year-over-year, while the core PCE Price Index reached 2.8%. Cleveland Fed President Beth Hammack dissented during the meeting, advocating for maintaining rates unchanged. She argued that the path to bringing inflation back to 2% would not be smooth and emphasized the need for more time to observe inflation trends.

Future Policy Outlook: Rate Cuts Likely to Be Reduced

According to the minutes, Fed officials expect only a 75-basis-point reduction in rates throughout 2025, a decrease from the previously anticipated four rate cuts. This adjustment reflects the committee’s concerns about the upside risks to inflation. Fed Chair Jerome Powell described the December rate cut as a “balanced decision” during the post-meeting press conference, emphasizing that future policy moves would be increasingly data-dependent.

Market Reactions and Expert Opinions: Growing Uncertainty

Following the release of the minutes, uncertainty over the Fed’s future policy trajectory grew. Economists noted that policy adjustments under the Trump administration could further push up inflation, limiting the Fed’s room for rate cuts. Analysts at Goldman Sachs projected that Trump’s tariff policies could increase the inflation rate by nearly 0.5 percentage points. Fed Governor Lisa Cook highlighted that since September 2024, the labor market has remained strong, while inflation has proven more persistent than expected, necessitating a more cautious approach to future rate cuts.