On January 8, the Federal Reserve released the minutes from the Federal Open Market Committee (FOMC) meeting held on December 17-18, 2024, revealing the future direction of monetary policy. The minutes showed that the Federal Reserve decided to lower the target range for the federal funds rate by 25 basis points at the last meeting, bringing the benchmark rate to 4.25% to 4.5%. This marks the third consecutive rate cut by the Federal Reserve, with a total reduction of 100 basis points. However, officials clearly stated that the pace of rate cuts will significantly slow down in 2025.
Inflation Remains a Key Concern
During discussions on inflation, participants noted that although inflation has significantly retreated from its peak in 2022, it remains elevated. The minutes mentioned that overall inflation eased in 2024, though some monthly data exceeded expectations. Nonetheless, most officials believed the changes in core goods and services prices indicate signs of inflation progress.
This high inflation environment has led officials to adopt a more cautious stance on future rate cuts. The minutes showed that participants anticipate the Federal Reserve to cut rates by only 75 basis points throughout 2025, a significant reduction compared to this year's cumulative cut of 100 basis points.
Market Disagrees on Policy Path
Despite having a preliminary plan for the pace of rate cuts, the market remains highly uncertain about the future policy direction. Futures prices indicate that the market expects the easing in 2025 to be less than the Federal Reserve's official forecast. Meanwhile, market participants still have considerable doubts about the specific path of the federal funds rate over the next year.
External Interpretation: Federal Reserve May Hold Steady
Renowned journalist Nick Timiraos, known as the "New Fed Whisperer," directly stated in his article that the signals from the Federal Reserve's meeting minutes suggest officials are prepared to maintain the current interest rates for the time being. His report directly titled, "Minutes Suggest the Possibility of Pausing Rate Cuts," highlights this stance.
Conclusion: Pace of Rate Cuts Enters New Phase
These meeting minutes highlight the Federal Reserve's cautious attitude toward inflation and its prudent planning for future policy adjustments. Analysts believe this reflects the Fed's consideration of avoiding too rapid a policy easing in the current economic environment. The market will closely watch the economic data in 2025 and further guidance on policy adjustments from the Federal Reserve.
