United States Federal Reserve officials acknowledged a rising risk that inflation could remain persistent as they deliberated policy adjustments during their December 17–18 meeting, according to minutes released on Wednesday (Thursday AEDT).
The minutes revealed that while inflation is expected to remain at around the same rate as in 2024, policymakers expressed concerns over potential inflationary pressures linked to anticipated policy changes under the incoming Trump administration.
"Participants expected that inflation would continue to move toward 2 percent, 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.
"Several observed that the disinflationary process may have stalled temporarily or noted the risk that it could," the minutes noted.
The Federal Open Market Committee (FOMC) described its December rate cut decision as "finely balanced", with some participants questioning the necessity of additional easing. "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 noted. Most participants advocated a cautious approach to further rate cuts, considering the one-percentage-point reduction already implemented this year.
Market reactions to the minutes remained measured. The CME FedWatch Tool showed markets pricing in steady rates within the current 4.25%–4.50% range for the next meeting.
The Fed's discussions highlighted the complexities of an economic outlook shaped by low unemployment, robust growth, and inflation still above the central bank's 2% target. Staff analysts flagged uncertainties stemming from President-elect Donald Trump’s proposed policies, including increased tariffs, stricter immigration rules, and tax reforms, which could combine to dampen growth and raise unemployment.
Trump's pledges of business-friendly deregulation and tax cuts have added further ambiguity to the inflation and growth outlook. Policymakers stressed that determining the full impact of these initiatives would require time and careful observation.
Meanwhile, Treasury yields responded to inflationary concerns. The 20-year yield surpassed 5% for the first time since 2023, while the 30-year yield reached 4.96%. The 10-year yield climbed to nearly 4.73%, approaching its November 2023 peak.