Fed Minutes: No Surprises as Focus Shifts to Future Dovish Pivots

The Federal Reserve’s December meeting minutes, released on Wednesday, provided few surprises for financial markets, allowing for a brief relief rally in equities. While investors were bracing for a potentially hawkish tone following the Fed’s recent rate cut, the minutes revealed a more measured approach to policy adjustments. This balanced stance underscores the Fed’s cautious outlook amid lingering inflation pressures, uncertainty surrounding fiscal policies under President-elect Donald Trump, and evolving economic conditions.

The Federal Reserve lowered the federal funds rate by 25 basis points to a target range of 4.25-4.5%. Most participants viewed the move as appropriate to maintain economic growth while continuing to reduce inflation, which remains above the 2% target. Recent core inflation readings showed a year-over-year rate of 2.8% in November, with short-term metrics showing further progress. However, the minutes highlighted uneven disinflation across various categories, with housing and non-market services—imputed rather than directly measured—driving much of the inflation. A significant majority of participants noted an increase in upside risks to inflation due to stronger-than-expected data and potential policy shifts in trade and immigration. However, many believed that restrictive monetary policy, anchored long-term inflation expectations, and reduced business pricing power would continue to exert downward pressure on inflation. The consensus suggests a slower pace of future rate cuts, reflecting the Fed’s focus on sustaining progress toward price stability.