The US Fed may see fewer rate cuts in 2025, according to minutes of the regulator’s latest meeting.
Notes from the December 17-18 meeting indicate that according to some participants, it may be prudent to pause rate cuts if inflation readings remain above target or economic momentum persists.
“The Fed minutes signal officials are hawkish, and we believe that we’re not likely to see more than one rate cut in 2025 – at most,” said Nigel Green, CEO of deVere Group.
“This stance reflects a mounting realization that inflation remains dangerously sticky, and the interest rate needed to bring it fully under control needs to remain higher than many previously anticipated,” he added.
Read: US Federal Reserve cuts interest rates by quarter point amid cooling inflation
Inflation concerns
U.S. central bank officials raised new inflation concerns and while staff has suggested that the incoming administration’s plans may slow economic growth and raise unemployment.
“With regard to the outlook for inflation, participants expected that inflation would 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, suggested that the process could take longer than previously anticipated,” the meeting notes said, referring to Donald Trump’s administration’s plans once he is sworn in.
Low appetite
Despite the December quarter-point cut, there seems to be little appetite for further reductions, as central bankers confront a robust US economy and fears that inflation could become entrenched if rates are eased too quickly.
Fed chair Jerome Powell has previously described the current economic landscape as akin to “driving on a foggy night or walking into a dark room full of furniture”.
“The uncertainty stems from the dual pressures of sticky inflation and unpredictable economic impacts from the incoming Trump administration’s tariff and tax policies,” said Green.
Risky path
For the Fed, the path forward is fraught with risk. The minutes appear to highlight fears that inflation may not fall back to the 2 percent target without maintaining or even increasing the current level of monetary restriction.
“The Fed understands the stakes here,” says Green. “Premature rate cuts could risk fueling further inflation, damaging its hard-won credibility and forcing even harsher measures down the line.”
Inflation rises
The US Consumer Price Index (CPI) for November rose to 2.7 percent on a 12-month basis, marking an uptick from October, while core inflation sits stubbornly at 3.3 percent. Such figures underscore that price pressures are far from subdued, despite earlier signs of cooling. Therefore, the Fed will be hard-pressed to justify loosening monetary policy while inflation regains momentum.
Unemployment woes
In addition to inflation, the robust US job market complicates matters further. Unemployment remains near historic lows, and labor market strength typically dissuades policymakers from cutting rates. Wage growth, which fuels consumer spending, could keep inflation elevated well into 2025.
