FOMC Minutes Confirm Fed on Hold — Evening Brief – 02.19.25
Federal Reserve officials discussed the potential effects of changes in trade and immigration on the economy. They also acknowledged the challenges in distinguishing between persistent and temporary changes in inflation, which could impact future economic decisions and policy adjustments, according to minutes of the Federal Open Market Committee’s (FOMC) January 28-29 meeting.
Regarding monetary policy, most Federal Reserve participants noted that the current high degree of uncertainty warranted a cautious approach in considering any additional adjustments. They emphasized the need to see further progress on inflation before making any further interest rate cuts.
FOMC participants highlighted several key factors during their discussion. These included reduced downside risks to the outlook for the labor market and economic activity, along with increased upside risks to the outlook for inflation. They also noted uncertainties surrounding the neutral rate of interest, the potential economic impact of higher long-term interest rates, and the possible effects of future government policies.
Many FOMC participants noted that the Committee could maintain a restrictive policy rate if the economy remained strong, and inflation stayed elevated. However, several others suggested that policy could be eased if labor market conditions weakened, economic activity slowed, or inflation returned to the 2% target more quickly than expected.
Some FOMC participants pointed out that potential changes in trade and immigration policies could hinder the disinflation process. Additionally, a couple of participants noted that the risks to achieving the inflation mandate appeared greater than the risks to the employment mandate at that time.
On the inflation front, many FOMC participants noted that the current 12-month inflation readings were elevated due to relatively high inflation levels in the first quarter of the previous year. Several participants highlighted that cumulative inflation over the past 3, 6, or 9 months showed more significant progress toward easing compared to the 12-month measures.
Most FOMC participants noted that month-over-month inflation readings in November and December showed significant progress toward the Committee’s goal of price stability, including in key subcategories. However, many participants stressed that further evidence of continued disinflation would be necessary to support the view that inflation was sustainably returning to the 2% target.
The minutes revealed that, in discussing the potential effects of tariffs, business contacts in several districts indicated that firms would likely try to pass on higher input costs to consumers resulting from potential tariffs.
The market has managed to handle a significant amount of global and domestic news without much disruption since the last FOMC meeting. Gold has stood out as a top performer, while stocks, bonds, oil, and the dollar have remained relatively steady.
FOMC officials have been cautiously hawkish since the last FOMC meeting. Fed Chair Jay Powell reiterated his “no rush to cut” stance, while several other Fed officials mentioned that the central bank is “in a good place.” They also removed the more optimistic language about inflation “continuing to trend down” from the prior statement, reflecting a more measured outlook.
Given that the hot CPI and PPI data, along with inflation expectations from softer survey data, were not included in the most recent FOMC minutes, it suggests a very low probability of a near-term interest rate cut. The absence of these factors points to a continued cautious approach toward monetary policy.