Federal Reserve Officials Expect Interest Rate Cuts on Hold: FOMC Minutes

Federal Reserve Chairman Jerome Powell testifies before the House Committee on Monetary Policy in Washington on Feb. 12, 2025. Madalina Vasiliu/The Epoch Times

Federal Reserve officials expect that interest rate cuts will be paused until monetary policymakers observe more progress on inflation, according to minutes from the January policy meeting.

Officials shared concerns about the possible effects of the new administration’s economic agenda, particularly tariffs, deregulation, and taxes.

They also say that adjustments to immigration policy could derail the institution’s disinflation process.

As a result, the Federal Open Market Committee (FOMC) meeting summary showed that the monetary authorities are worried that these factors could resuscitate inflation risks in the future.

“Participants observed that the committee was well positioned to take time to assess the evolving outlook for economic activity, the labor market, and inflation, with the vast majority pointing to a still-restrictive policy stance,” the document reads.

“Participants indicated that provided the economy remained near maximum employment, they would want to see further progress on inflation before making additional adjustments to the target range for the federal funds rate.”

Still, they noted that monetary policy decision-making was not on a preset course and that actions would be dependent on changes in the economy, outlook, and balance of risks.

Fed officials believe that policy could remain restrictive—a position that neither stimulates nor restricts economic growth—because of the economy’s strength.

At last month’s policy meeting, the Fed left interest rates unchanged for the first time since officials launched their easing cycle in September 2024. Policymakers agreed to keep the benchmark federal funds rate unchanged at between  4.25 percent and 4.5 percent.

The updated December 2024 Summary of Economic Projections, a quarterly survey of monetary officials and their expectations for policy and economic data, suggested only two quarter-point rate cuts this year, down from the initial prediction of four 25-basis-point cuts.

Investors are penciling in the next policy decision at the September meeting, with the futures market forecasting a quarter-point decrease, according to the CME FedWatch Tool.

Federal Reserve Chair Jerome Powell has indicated that he and his colleagues are not in a hurry to lower interest rates until there is progress on inflation.

“With our policy stance now significantly less restrictive than it had been and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance,” Powell told Congress last week for his semi-annual monetary policy report.

“We know that reducing policy restraint too fast or too much could hinder progress on inflation. At the same time, reducing policy restraint too slowly or too little could unduly weaken economic activity and employment.”

Last week, the annual inflation rate rose for the fourth consecutive month, reaching 3 percent, the highest level since June 2024.

Fed Officials: Patience, Please

A chorus of senior Fed officials have expressed the same sentiment as Powell: The central bank can afford to be patient as the economy continues to grow and the labor market remains solid.

While policymakers assess various scenarios, Dallas Federal Reserve President Lorie Logan said that “we’ll need to hold rates at least at the current level for quite some time.”

She noted that even if the Fed observes inflation returning close to the institution’s 2 percent target in the coming months, it might not be enough to “allow the FOMC to cut rates soon.”

“There are many uncertainties right now beyond the near-term inflation and employment data,” Logan said in a speech at the Chapultepec Conference in Mexico City earlier this month.

“The monetary policy implications of these uncertainties generally come down to whether sustainably restoring price stability requires keeping rates at least at the current level or moving lower.”

In an interview with CNBC earlier this month, Boston Fed President Susan Collins reiterated her colleagues’ idea that there is no rush to slash interest rates amid uncertainty surrounding the broader economic outlook.

“It’s really appropriate for policy to be patient, careful, and there’s no urgency for making additional adjustments, especially given all of the uncertainty,” Collins said.

The Boston Fed recently published a paper projecting that President Donald Trump’s tariffs could raise core inflation—a measure that removes the volatile energy and food categories—by as much as 0.8 percentage points, which could damage the central bank’s outlook.

Speaking at an automobile symposium on Feb. 5, Chicago Federal Reserve chief Austan Goolsbee warned of the possible inflationary effects of the new administration’s tariffs.

“If we see inflation rising or progress stalling in 2025, the Fed will be in the difficult position of trying to figure out if the inflation is coming from overheating or if it’s coming from tariffs,” Goolsbee said. “That distinction will be critical for deciding when or even if the Fed should act.”

The Federal Reserve’s next two-day policy meeting will occur on March 18 and March 19.