In the December monetary policy meeting, many Federal Reserve officials emphasized the necessity of a cautious approach to interest rate decisions over the upcoming quarters, as noted in the meeting minutes. This careful stance is deemed essential due to a variety of factors, including heightened upside risks to the inflation outlook, partly stemming from uncertainties surrounding U.S. President-elect Donald Trump's proposed policies.
The Fed officials maintained expectations that inflation would continue its trajectory towards the 2 percent target. However, they acknowledged that potential shifts in trade and immigration policies might prolong this process. Consequently, they concurred that the Fed was approaching a juncture where it might be appropriate to decelerate the pace of policy easing.
The consensus among officials also favored a gradual shift towards a more neutral policy stance over time. It was noted that, after reducing rates by 100 basis points since September, the policy rate is now considerably closer to its neutral value. A substantial majority of participants observed that this positioning allowed the Fed the opportunity to take the time needed to assess the evolving economic and inflation landscape.
During the December meeting, the Fed decided to cut the target range for the federal funds rate by 25 basis points, setting it at 4.25 to 4.50 percent, though the decision was not unanimous. Cleveland Fed President Beth M. Hammack opposed the rate cut, advocating for rates to remain unchanged at 4.50 to 4.75 percent.
The minutes revealed that a large majority of participants believed the rate reduction would bolster the economy and labor market while further advancing progress on inflation. However, some argued for maintaining current rates, citing elevated inflation risks in recent months.
Looking ahead, the Fed's next monetary policy meeting is slated for January 28-29. According to CME Group's FedWatch Tool, there is currently a 95.2 percent probability that the central bank will maintain the existing rates.
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