Fed minutes show policymakers see immigration, rate changes create inflation uncertainty

The Federal Reserve’s policy arm released the minutes of its most recent meeting on Wednesday in which central bank officials noted that uncertainty about how President-elect Trump policies will be implemented based on their outlook for inflation.

The Federal Open Market Committee (FOMC) is responsible for making decisions on monetary policy and is made up of a rotating group of regional. Federal Reserve Bank presidents set the central bank’s target range for the benchmark federal funds rate.

Minutes from the Fed’s December meeting, where policymakers lowered rates by 25 basis points to a range of 4.25% to 4.5%, showed uncertainty among FOMC members about the direction of economic conditions and the future public policy changes. Fed Chairman Jerome Powell noted that the cut was a “closer call” due to stubborn inflation and a softening labor market, adding that the Fed could seek to slow the pace of forward interest rate adjustments.

“Regarding the inflation outlook, participants expected inflation to continue to move toward 2 percent, although they noted that recent higher-than-expected readings on inflation , and the effects of potential changes in trade and immigration policy, suggest that the process could take longer than anticipated,” the FOMC minutes said.

FED’S PREFERRED INFLATION GAUGE IN NOVEMBER WAS LOWER THAN EXPECTED, BUT REMAINS ELEVATED

The FOMC minutes showed that policymakers see uncertainty about the path of inflation due to Trump’s potential changes and immigration. (Photo: Ting Shen/Bloomberg via Getty Images/Getty Images)

The minutes added that many participants noted that the disinflation process may be stalled, or that there is a risk that it could stall, keeping inflation above the Fed’s 2% target. The most recent reading of the consumer price index (CPI) came in at 2.7%, while the Fed prefers. inflation gaugeknown as the personal consumption expenditure index (PCE), it was 2.4%.

Other participants noted that the positive feeling in the financial markets and the boost in economic activity could put upward pressure on inflation, while there was consensus on policy uncertainty related to the incoming administration.

“All participants judged that uncertainty about the scope, timing, and economic effects of potential changes in policies affecting trade and immigration was elevated,” the FOMC minutes noted.

FEDERAL RESERVE CUT INTEREST RATES BY QUARTER POINT IN DECEMBER

Federal Reserve Chairman Jerome Powell said after the latest rate cut that the Fed could seek to slow the pace of lowering interest rates in response to economic conditions. (Photo by Liu Jie/Xinhua via Getty Images/Getty Images)

Trump has called for mass deportations of illegal immigrants and recently dismissed reports that his transition team was softening the tariff plans he said during the presidential campaign. Economists have raised concerns that these policies could put upward pressure on consumer prices, which FOMC members noted in the minutes of the meeting.

“Almost all participants judged that upside risks to the inflation outlook have increased. As reasons for this judgment, participants cited recent stronger-than-expected readings on inflation and the likely effects of potential changes in trade and immigration policy“, the minutes say.

Fed-watchers noted the high degree of uncertainty in the FOMC minutes regarding the course of interest rates, inflation and economic growth arising from the plans of the new administration.

GET FOX BUSINESS ON THE GO BY CLICKING HERE

Jeffrey Roach, chief economist at LPL Financial, noted: “The word ‘uncertain’ or a derivative of it has been mentioned twelve times in the entire official record by the Federal Open Market Committee. Forcecasters are finding it increasingly difficult to model the path for interest rates. growth, and inflation because of the uncertainty surrounding Trump’s policies that are still developing.”