Federal Reserve officials have been signaling that further interest rate cuts are on hold for now given slowed progress on inflation and a still-strong U.S. economy, but minutes from the central bank's December meeting may show just how deeply that sentiment is shared among policymakers facing a newly uncertain economic environment under the incoming Trump administration.
After cutting rates by a quarter of a percentage point at the Dec. 17-18 meeting, Fed Chair Jerome Powell said policymakers could now be "cautious" about further reductions, and noted that some officials had begun approaching upcoming decisions as if they were "driving on a foggy night or walking into a dark room full of furniture" because of uncertainty around the impact of President-elect Donald Trump's tariff, tax and other proposals.
The minutes, to be released at 2 p.m. EST (1900 GMT) on Wednesday, may help clarify how policymakers will approach further rate reductions. Projections issued after the December meeting showed officials anticipating just a half percentage point worth of rate cuts this year, compared to a full percentage point as of September.
The minutes "are likely to fully reflect this relatively hawkish viewpoint," analysts from Citi wrote. "This would include discussion of concerns that inflation could remain persistently elevated if policy rates do not remain suitably restrictive," and perhaps discussion as well that the rate of interest needed to fully return inflation to the Fed's 2% target has moved higher.
"That would be part of the rationale for the committee now planning to slow the pace of rate cuts," the Citi team wrote.
The Fed reduced the policy rate by a full percentage point over its last three meetings of 2024, with the benchmark rate now set in a range of 4.25% to 4.5%.
Economic data since then has remained steady across several important fronts, with growth still seen at well above 2%, the unemployment rate staying in the low 4% range, and the Fed's preferred measure of inflation, known as the personal consumption expenditures price index, most recently measured at 2.4%.
Fed officials who have spoken publicly since the last meeting have said there is no reason to rush further cuts until it is clear something has changed in the data - a clear drop in hiring and rise in unemployment, for example, or a renewed decline in inflation toward the 2% target.
Richmond Fed President Thomas Barkin, for example, said last week that he felt the Fed should keep credit conditions tight until there was "real confidence that inflation has stably gotten down to the 2% target ... The second would be a significant weakening on the demand side of the economy."
New jobs data on Friday will show how employment and wages changed in December. A separate labor market survey for November, released on Tuesday, painted an overall picture of stability - or at least only slow change. There was a small uptick in job openings, considered a sign of continued economic strength, but a small drop in hiring and in the number of workers who voluntarily quit, considered signs of a weaker hiring environment.
The meeting minutes may also show Fed officials discussing in more detail when to halt their current effort to reduce the size of the central bank balance sheet. Having shaved about $2 trillion off their bond holdings since the summer of 2022, officials are widely expected to end the effort at some point in 2025.
Some Fed watchers expect the minutes to provide new information about the end of so-called quantitative tightening.
