The Federal Reserve released late Wednesday the minutes of the December 17-18 Federal Open Market Committee (FOMC) meeting. At the meeting, policymakers lowered rates to a target range of 4.25%-4.5%, marking a second straight cut of 25 basis points. The US Dollar showed a muted reaction to the minutes.

Fed Worried that Trump Policies Will Boost Inflation 

At the Fed’s final meeting in 2024, policy makers indicated concern about inflation and the negative impact that incoming President-elect Donald Trump’s policies could have on inflation. Trump has promised to enact trade tariffs on key US trading partners, including China, Mexico and Canada, and he has also called for mass deportations of illegal immigrants.

The Fed minutes did not mention Trump by name but the address was unmistakable, with policymakers stating their concern over inflation due to “the likely effect of potentials changes in trade and immigration policy”. The minutes mentioned this concern several times and noted that almost all members agreed that upside risks to inflation had increased.

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Fed Plans to Slow Pace of Easing 

As for monetary policy, members indicated that the Fed was “at or near the point” of slowing the pace of easing. This reiterated the Fed’s rate forecast at the December meeting, which lowered the expected number of cuts in 2025 to two, compared to four cuts in the September forecast. The currency markets reacted sharply following the December rate forecast, with the US Dollar posting sharp gains against the major currencies. In contrast, the US Dollar has showed a limited reaction to the Fed minutes.

The takeaway from the minutes is that the Federal Reserve is concerned about the potential Trump effect on inflation and will be cautious in its rate path in the near future. According to the minutes, there was a “need for a careful approach to monetary policy decisions over coming quarters.”

US Dollar Edges Higher, Stock Markets Steady After Fed Minutes 

The US Dollar is showing a muted reaction to the Federal Reserve minutes, with slight gains against the major currencies. The exception is the British Pound, which is down sharply. The GBP/USD currency pair declined 0.9% on Wednesday and dropped as low as 1.2237 earlier on Thursday, its lowest level since November 2023.

In the US, the major stock indices were almost unchanged on Wednesday, showing little movement in the aftermath of the Fed minutes.

The S&P 500 Index rose 9.22 points (0.16%) to close at 5,918.25.

The Nasdaq 100 Index climbed 7.92 points (0.037%) to close at 21,180.96.

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