Federal Reserve officials in January agreed they would need to see inflation come down more before lowering interest rates further. Concerns were raised about the impact of President Donald Trump’s tariffs on inflation, according to meeting minutes released Wednesday. The Federal Open Market Committee unanimously decided to hold their key policy rate steady after three consecutive cuts totaling a full percentage point in 2024. Members commented on potential impacts from the new administration, including tariffs, reduced regulations, and taxes. Current policy is considered “significantly less restrictive,” allowing time to evaluate conditions before making additional moves. Members emphasized the need for further progress on inflation before adjusting the federal funds rate, while noting concerns about policy changes keeping inflation above the Fed’s target. Trump has already instituted some tariffs and threatened to expand them, including potential 25% duties on autos, pharmaceuticals, and semiconductors. FOMC members cited risks from trade and immigration policy changes as well as strong consumer demand, with businesses likely passing higher input costs to consumers. Since the meeting, most central bank officials have expressed caution about future policy moves, given the current level of rates. Trump’s fiscal and trade policies have added complexity to the Fed’s considerations. Despite tariff and inflation concerns, there was “substantial optimism” about the economic outlook due to expectations of eased regulations or tax policy changes. Economists expect Trump’s planned tariffs to aggravate inflation, though the Fed’s response will depend on whether they result in one-time increases or generate underlying inflation. Recent inflation indicators have been mixed, with consumer prices rising more than expected in January but wholesale prices showing softer pressures. Fed Chair Jerome Powell has avoided speculating on tariff impacts, though other officials expressed concern that Trump’s moves could delay rate cuts further. Market pricing currently anticipates the next rate reduction in July or September. The Fed’s benchmark overnight borrowing rate is targeted between 4.25%-4.5%.— news fromCNBC
