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With inflation still elevated, Federal Reserve officials expressed caution at their last meeting about cutting interest rates too quickly, adding to uncertainty about their next moves.
Even if inflation continued declining to the Fed’s 2% target, officials said, “it would likely be appropriate to move gradually” in lowering rates, according to minutes of the November 6-7 meeting.
The minutes don’t specifically provide much guidance about what the Fed will do at its next meeting Dec. 17-18. Wall Street investors see the odds of another quarter-point reduction in the Fed’s key rate at that meeting as nearly even, according to CME Fedwatch. Most economists think officials will probably cut rates next month for the third time this year, but could then skip cutting at following meetings.
In September, the Fed signaled it would reduce its key rate as many as four times next year, but since then investors and economists have come to expect fewer cuts. The economy is growing at a solid pace, inflation is showing signs of getting stuck above the Fed’s target, and President-elect Donald Trump’s proposals, particularly higher tariffs, could also accelerate inflation.
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From CNN: Tariffs effectively serve as a tax on goods imported to the United States. Although Trump has repeatedly said targeted foreign countries pay the tariffs, they are in fact paid by companies that purchase the imported goods – and those costs are typically passed onto American consumers. Most mainstream economists believe tariffs will be inflationary, and the Peterson Institute for International Economics has estimated Trump’s proposed tariffs (before the new tariffs announced Monday night) would cost the typical US household over $2,600 a year.