Source: Barron's Chinese

The anti-inflation process has stalled. At the same time, under the control of the Republican Party, many agendas in Congress will further push up inflation.

Federal Reserve officials debated continued inflation at the December 2024 meeting, and also put forward a series of views on where interest rates will be in 2025. Officials emphasized that the Fed does not set a predetermined target and will need to adjust it based on economic data and Trump's comments.

The minutes of the Federal Reserve meeting released on Wednesday (January 8) mentioned that “participants expected the inflation rate to continue to fall toward 2%, but they believed that recent higher-than-expected inflation data, as well as trade and immigration The impact of potential changes means that this process may take longer than previously expected. Some participants believed that the anti-inflation process may have temporarily stalled, and others pointed to possible risks.”

The Federal Open Market Committee (FOMC) lowered the federal funds rate target range by 25 basis points for the third consecutive time at its meeting held from December 17 to 18 last year, to 4.25%-4.5%. Officials also signaled that the pace of future rate cuts will be slower due to persistent inflation, a still-growing U.S. economy and fiscal uncertainty.

The updated Summary of Economic Projections shows that Fed officials’ median estimate of the target range for the federal funds rate at the end of 2025 is 3.75% - 4%, 50 basis points below current levels. Previously, Fed officials had expected a 100 basis point rate cut in 2025.

The minutes of the meeting showed: “Many participants believed that due to factors such as the recent increase in inflation data, continued strong consumer spending, reduced downside risks to the labor market and economic activity prospects, and increased upward risks to inflation, the future We must remain cautious in monetary policy decisions for several quarters.”

Fed officials expect inflation to continue to be higher than previously expected in 2025, and the inflation rate at the end of this year, as measured by the Fed’s most concerned price indicator. at the 2.5% level. They also expect the unemployment rate to rise slightly this year, but at a slower pace than before. December employment data will be released this Friday (January 10).

Federal Reserve officials are more optimistic about the overall economic situation in the United States. The minutes of the meeting showed: "Participants noted that economic activity continues to expand at a solid pace, and overall, the recently released economic activity and consumer spending data are stronger than expected. Participants believe that a strong labor market, real wages continue to rise and rising household net worth, supporting consumption. ”

The U.S. Republican Party will control Congress for at least the next two years, with an agenda focused on restricting immigration, lowering taxes and loosening regulations, and imposing taxes on trading partners. Tariffs, etc. President-elect Trump has proposed many measures that could boost economic growth.while pushing up inflation.

The minutes of the meeting show: “All participants believed that these will bring potential changes to foreign trade and immigration, and the uncertainty involved in the scope, implementation time and economic impact is relatively large.”

The decision to cut interest rates by 25 basis points on December 18, 2024 was not unanimously adopted. Cleveland Federal Reserve President Beth Hammack voted against, and she wanted to keep interest rates unchanged. Hammack will no longer have a vote in 2025, when four new regional Fed presidents will take turns voting, including those who are skeptical of further rate cuts.

The minutes of the meeting showed: “Some participants believed that the Fed should maintain the target range of the federal funds rate unchanged. They pointed out that the risk of rising inflation has increased in recent months, and several participants emphasized that , In order to create a financial environment that allows inflation to continue to fall toward 2%, the Fed needs to achieve this through currency.”

The November inflation data released after the December 2024 meeting was weaker than expected. But it is still well above the 2% target level.

The next Federal Reserve meeting will be held from January 28th to 29th. Employment data and inflation data for December last year will be released before the meeting. Trends in the interest rate futures market on Wednesday showed that the probability of the Federal Reserve cutting interest rates this month was less than 5%, and the probability of only one 25 basis point interest rate cut in 2025 was the highest.