The minutes from the December meeting of the Federal Reserve (Fed) reveal that officials are worried about inflation risks and the potential impacts of Trump's policies, indicating a cautious approach to rate cuts. Although Trump was not directly named, the meeting summary frequently mentioned the potential effects of changes in immigration and trade policies on the U.S. economy. At the time of writing, Bitcoin was trading at $94,968, down 1.95% over the past 24 hours.

Trump's Policies Raise Inflation Concerns

The minutes show that Fed officials are vigilant about the aggressive policies that the Trump administration might implement, particularly changes in immigration and trade policies. These include imposing punitive tariffs on countries like China, Mexico, and Canada, deregulation efforts, and plans for large-scale deportations. The exact direction and extent of these actions remain unclear, leading to high uncertainty in Fed's decision-making. The record notes that almost all participants judged the risk of upward inflation expectations to have increased, attributing this to recent higher-than-expected inflation data and potential policy shifts.

Fed Slows Rate Cuts

In the December meeting, the Fed decided to lower the benchmark rate to a target range of 4.25%-4.5%, but the expectation for rate cuts in 2025 was reduced from four in September to two. Market predictions suggest that the Fed might implement only one to two rate cuts in 2025, with no action expected at the January 28-29 meeting. The minutes further indicate that future rate cuts will be significantly slower. Participants noted, "The Committee is close to the point where it would be appropriate to slow the pace of policy easing." Moreover, officials unanimously agreed that current policy rates are nearing neutral levels, necessitating more cautious policy adjustments.

Stable Economic Conditions Reinforce Cautious Stance: Inflation Above Target

Fed officials emphasized that economic stability is another major factor in adopting a cautious policy. While consumer spending remains robust, the labor market is stable, and GDP growth exceeds trend, inflation is still above the 2% annual target. The core inflation rate for November was 2.4%, with the overall rate including food and energy prices at 2.8%. Although the Fed predicts inflation will gradually return to 2%, the minutes suggest most officials believe this target might not be achieved until 2027.

Policy Adjustments Amid High Uncertainty

Fed Chair Jerome Powell, at the December 18 press conference, likened the current policy decision-making scenario to "driving on a foggy night or walking into a dark room full of furniture." He pointed out that under such high uncertainty, the committee is taking a gradual approach towards a neutral policy stance. This sentiment was echoed in the meeting minutes, where many participants felt that the high level of uncertainty requires the committee to act cautiously to assess the evolution of economic activity and inflation.

Future Rate Cut Plans and Long-term Outlook

The Fed's "dot plot" indicates that committee members expect two more rate cuts in 2026, followed by one or two more, eventually bringing the long-term federal funds rate target down to 3%. Future policy actions will be data-dependent, not adhering to a fixed schedule.

The Fed's minutes suggest that while policy remains accommodative in the short term, adjustments will become more cautious as policy rates approach neutral levels. Balancing inflation risks with economic stability will be central to the Fed's future policy decisions.

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