US Fed worried about impact of Trump policies on inflation
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The news: US Federal Reserve officials raised new inflation concerns and suggested the incoming Trump administration's plans may slow economic growth and raise unemployment, according to minutes of its December policy meeting.
The numbers: The US central bank’s policy board proceeded with a quarter percentage-point rate cut to a range of 4.25% to 4.50% at its 17 to 18 December meeting.
However, the minutes described the decision as "finely balanced" with some participants noting the merits of not reducing borrowing costs in light of stalled progress in lowering inflation as well as rising inflation risks that may lay ahead.
The context: Participants at the FOMC policy meeting 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," according to the minutes.
President-elect Donald Trump has vowed to impose aggressive trade tariffs and deportation of some immigrants, adding to an uncertain scenario for the US central bank, prompting it to pause further reductions in borrowing costs.
Since the meeting, interest rate futures markets have reflected bets that the Fed would keep its policy rate steady at its next couple of meetings, with the first reduction expected in May at the earliest, and the odds of a second cut in 2025 only at 50%.
