Fed Officials Prefer Careful Approach To Rate Decisions Amid Inflation Risks

(RTTNews) - Many Federal Reserve officials believe a careful approach to interest rate decisions will be necessary over the coming quarters, according to the minutes of the central bank's December monetary policy meeting.

The minutes said the careful approach will be needed due to a variety of factors, including increased upside risks to the outlook for inflation due in part to uncertainty about the impact of U.S. President-elect Donald Trump's proposed policies.

Fed officials still expect inflation to continue moving toward 2 percent but noted the effects of potential changes in trade and immigration policy could lead to the process taking longer than previously anticipated.

They subsequently agreed that the Fed was "at or near the point at which it would be appropriate to slow the pace of policy easing."

The minutes said officials also agreed it would be appropriate to continue to move "gradually toward a more neutral stance of policy over time," with some observing that the policy rate was now significantly closer to its neutral value after cutting rates by 100 basis points since September.

A substantial majority of participants also observed that the Fed was well positioned to take time to assess the evolving outlook for economic activity and inflation.

At the December meeting, the Fed voted to lower the target range for the federal funds rate by 25 basis points to 4.25 to 4.50 percent, although the vote was not unanimous.

Cleveland Fed President Beth M. Hammack voted against the rate cut, preferring to leave rates unchanged in a range of 4.50 to 4.75 percent.

The minutes said a vast majority of participants believed the rate cut would help maintain the strength in the economy and the labor market while continuing to enable further progress on inflation.

However, some said there was merit in keeping rates unchanged due to an increase in the risks of persistently elevated inflation in recent months.

The Fed's first monetary policy meeting of the new year is scheduled for January 28-29, with CME Group's FedWatch Tool currently indicating a 95.2 percent chance the central bank will leave rates unchanged.