Federal Reserve Policymakers Weigh Slowing Rate Cuts Due to Stalling Disinflation
The minutes from the Federal Reserve’s December 17-18 meeting showed that policymakers were in favor of slowing the pace of rate cuts due to concerns about stalling disinflation. The slowdown was prompted by slower progress on curbing the pace of inflation towards the 2% target.
The minutes stated that the overall pace of disinflation had slowed in 2024, with some recent monthly price readings being higher than anticipated. Several Fed members observed that the disinflationary process may have stalled temporarily or noted the risk that it could.
Despite the close vote, the Fed’s Federal Open Market Committee (FOMC) cut its benchmark rate to a range of 4.25% to 4.5% at its December meeting. The decision marked the third rate cut in a row, which was characterized as a hawkish cut as the Fed reined in the number of rate cuts for next year.
The summary of economic projections accompanying the rate decision showed that Fed members expected inflation to take longer to reach the 2% target and saw only two rate cuts for this year, down from four cuts previously.
Since the Fed meeting, incoming economic data, including the recent ISM services survey, has sparked further fears of a shallower rate cut cycle. However, Fed Governor Christopher Waller believes that inflation will continue to slow, allowing the Fed to continue its rate-cutting journey.
As a result, traders now expect the Fed to stay on pause until June, with no rate cuts in the near term.
