Federal Reserve Officials Express Concerns Over Inflation Impact from Trump Policies: Meeting Minutes

The minutes from the December policy meeting indicate that Federal Reserve officials anticipate inflation will gradually approach the bank’s 2 percent target. However, they acknowledge that this process might be slowed by impending changes to immigration and trade policies, as detailed in the minutes.

While the policymakers did not mention President-elect Donald Trump directly, the meeting summary underscores their concerns regarding the uncertainty tied to the incoming administration’s policies.

The minutes from the Federal Open Market Committee (FOMC) meeting, which were made public on Jan. 8, reference possible economic ramifications of shifts in trade and immigration policies.

The meeting participants expect next year’s inflation trajectory to mirror the trends observed last year. Based on assumptions regarding trade policy, inflation is projected to hit the central bank’s 2 percent target by 2027.

“Almost all participants agreed that the upside risks to the inflation outlook had increased. Participants attributed this judgment to recent stronger-than-expected inflation readings and the probable consequences of potential changes in trade and immigration policy,” the minutes noted.

“The risks surrounding the inflation forecast were viewed as leaning toward the upside, as core inflation had not decreased as much as anticipated in 2024, and the impacts of trade policy changes could exceed staff assumptions.”

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The president-elect has committed to imposing universal tariffs on all U.S. imports of between 10 to 20 percent and 60 to 100 percent on goods from China.

Following his victory in the November 2024 elections, Trump has threatened to implement substantial tariffs on imports from Canada, Mexico, and China, citing border security and the fight against illegal drug trafficking. He recently warned of tariffs on imports from countries involved in de-dollarization efforts.

Moreover, Trump and his team have announced plans for mass deportations of illegal immigrants.

Last month, Federal Reserve Chair Jerome Powell remarked that it is too early to adjust monetary policy based on Trump’s yet-to-be-finalized policies, likening the situation to “navigating a foggy night or entering a dark room full of furniture. You just slow down.”

Economists have been discussing the potential inflationary pressures stemming from the president-elect’s proposed trade and immigration policies.

In addition to these topics, meeting attendees expressed concerns that services inflation remains excessively high.

“Regarding core services prices, many participants noted that the increases in several components had exceeded expectations recently; however, many also pointed out that these increases were primarily in non-market-based price categories, which typically do not provide reliable signals about resource pressures or future inflation trends,” the minutes stated.

Hold Your Pause

The minutes delineate the central bank’s anticipated interest rate trajectory for the upcoming year, suggesting a conservative and measured approach to normalizing rates.

Last month, the Fed lowered interest rates for the third consecutive meeting, reducing the benchmark federal funds rate by a quarter percentage point to a range of 4.25 percent to 4.5 percent.

Following the December meeting, financial markets reacted negatively as officials indicated a lower number of proposed rate cuts than previously expected.

The median projection also indicated a half-point cut for 2026 and one quarter-point reduction for 2027.

In the long-term, Fed officials project a median policy rate of 3 percent, which is slightly above the September estimate of 2.9 percent.

“In discussions about the outlook for monetary policy, participants mentioned that the Committee is close to the point where it would be appropriate to ease the pace of policy changes,” the summary from December’s meeting stated.

FOMC members concurred that the policy rate is approaching a neutral level—one that neither promotes nor restricts economic growth—and emphasized a “careful approach to monetary policy decisions in the coming quarters.”

Powell attributed the more hawkish policy stance to inflationary risks.

“As we consider additional cuts, we will seek evidence of progress on inflation,” he informed reporters after the meeting on Dec. 18. “We’ve been stagnant regarding 12-month inflation.”

Inflation has been creeping higher, even as the Fed has lowered rates by a full percentage point since September 2024.

The annual inflation rate of the consumer price index for December 2024 is anticipated to rise to 2.9 percent, up from 2.7 percent in November 2024.

Jeffrey Roach, chief economist at LPL Financial, argues that a stable job market and robust growth might lead the Fed to deem drastic rate cuts unnecessary.

“A strong job market will dampen the Fed’s motivation for aggressive rate cuts, especially with persistent services inflation,” Roach mentioned in an email to The Epoch Times.

Tom Essaye, founder and president of Sevens Research, asserts that the December 2024 jobs report will significantly influence the Fed’s upcoming decisions and the market’s reaction.

“This underscores why Friday’s jobs report will be critically important, even more than usual,” Essaye noted in an email to The Epoch Times.

“If the results indicate ‘yes,’ we may see a sharp decline in stocks; conversely, a ‘no’ could trigger a relief rally.”

All attention will be focused on the forthcoming employment data, with consensus projections of 154,000 new jobs and an unemployment rate of 4.2 percent.

This scenario would likely solidify a pause in rate changes at the January FOMC meeting.

Larry Tentarelli, chief technical strategist at Blue Chip Daily Trend Report, speculates that the Fed may take a pause for a few meetings.

“Given the persistent inflation and a strong labor market, we anticipate that the Fed may remain on hold for the next several meetings, unless significant weakness appears in the labor market or new economic data comes in,” Tentarelli informed in an email to The Epoch Times.