By 
Washington — Federal Reserve officials agreed that inflation is likely to continue to slow this year, but also saw a rising risk that price pressures may remain sticky as policymakers began wrestling with the impact of policies expected from the incoming Trump administration, the minutes of the US central bank’s December 17-18 meeting showed on Wednesday.
“Participants expected that inflation would continue to move toward 2%, although they noted that recent higher-than-expected readings on inflation, and the effects of potential changes in trade and immigration policy, suggested that the process could take longer than previously anticipated,” the minutes said of the discussions about the Fed’s decision last month to cut its benchmark policy rate by a quarter of a percentage point.
“Several observed that the disinflationary process may have stalled temporarily or noted the risk that it could.”
The minutes described the December rate cut by the policy-setting federal open market committee as “finely balanced”, with some participants noting the “merits” of not reducing borrowing costs in light of what some see as stalled progress in lowering inflation.
Given the uncertainty ahead 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 policy easing”, the minutes said. “Most participants remarked that … the committee could take a careful approach in considering” further cuts.
The minutes showed policymakers facing a set of new influences on an economy that starts the year with relatively low unemployment, strong growth and inflation that remains above the Fed’s 2% target but is expected to decline.
Fed staff “highlighted the difficulty” of predicting what lay ahead from an administration that has promised to deport undocumented immigrants, tighten the borders and raise taxes on imported goods, but said it could lead to slower growth and higher unemployment.
“After incorporating the recent data and preliminary placeholder assumptions about potential 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 a bit higher,” the minutes said of staff assessments of the policies that president-elect Donald Trump’s return to power on January 20 may usher in.
Along with higher tariffs, volatile trade relations, and tough immigration rules, Trump has also pledged looser regulations on business and tax cuts. Policymakers say it will take time to determine the net impact of those policies on growth, jobs and inflation.
The Fed may hold its policy rate steady in the current 4.25%-4.50% range at its January 28-29 meeting.
Reuters
Comments