Fed Minutes Signal Slower Rate Cuts Amid Policy Uncertainty

The Federal Reserve's latest meeting minutes reveal plans for a slower pace of interest rate cuts, influenced by policy uncertainties tied to President-elect Donald Trump. Analysts at Goldman Sachs noted that Trump's proposed tariffs and mass deportations have raised concerns about inflation trends.

Fed officials highlighted risks tied to Trump's policies, suggesting inflation's return to the 2% target may take longer than anticipated. While the Federal Open Market Committee cut rates by one percentage point in 2024, some members favored a cautious approach to further reductions, citing upside risks to inflation.

Market expectations now lean toward stable borrowing costs in the near term, with the next rate cut forecasted no earlier than May. This sentiment gained traction after private payroll data showed a slowdown in December, while jobless claims declined.

Goldman Sachs analysts observed the absence of discussion about the Fed’s balance sheet reduction in the minutes. They revised their timeline for quantitative tightening (QT), now anticipating Treasury runoff to extend through March and mortgage-backed securities runoff to end in June.

The Fed's careful stance reflects ongoing efforts to balance economic growth, inflation risks, and policy uncertainties, leaving markets attuned to upcoming data, including Friday’s US employment report.