Breaking: FOMC Minutes show officials weigh in potential changes to trade and immigration policies

Some Federal Reserve (Fed) officials indicated they had incorporated placeholder assumptions regarding potential trade and immigration policy changes into their projections. The document also shows President-elect Donald Trump's trade policy could make inflation data harder to read. Furthermore, many policymakers saw the need for a careful approach in the upcoming quarter. 

"The information available at the time of the meeting indicated that real gross domestic product (GDP) had continued to expand at a solid pace in 2024. Labor market conditions had eased since early 2024, but the unemployment rate remained low. Consumer price inflation was below its year-earlier rate but was still somewhat elevated," the document reads.

Key takeaways

Fed Staff projected slightly lower GDP growth and a bit higher unemployment rate than the previous baseline forecast after incorporating recent data and placeholder assumptions of potential policy changes from the incoming administration.

Most participants saw it appropriate to lower the target range by 25 bps at the December meeting.

Participants indicated if data came in about as expected, it would be appropriate to continue to move gradually toward a more neutral policy stance.

Participants expected inflation to keep moving toward 2%, but the effects of potential trade and immigration policy changes suggested that the process could take longer than previously anticipated.

Officials are expected to slow the pace of rate cuts after the December meeting.

Almost all officials said upside risks to inflation had increased.

 

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This section below was published as a preview of the FOMC Minutes of the December 17-18 meeting at 18:00 GMT. 

• The Minutes of the Fed’s December 17-18 policy meeting will be published on Wednesday.
• Details surrounding the discussions on the decision to trim interest rates by 25 basis points will be scrutinized by investors.
• The publication could influence the market pricing of the Fed’s policy outlook and the US Dollar’s valuation. 

The Minutes of the United States (US) Federal Reserve’s (Fed) December 17-18 monetary policy meeting will be published on Wednesday at 19:00 GMT. Policymakers lowered the rate by 25 basis points (bps) to the range of 4.25%-4.5% at the last policy meeting of 2024. However, the revised Summary of Economic Projections (SEP), also known as the dot plot, highlighted a cautious stance on further policy easing moving forward.

Jerome Powell and co decided to cut rates after December meeting

The Federal Open Market Committee (FOMC) voted 11 to 1 in favor of a 25 bps rate cut, with Cleveland Fed President Beth Hammack preferring to leave the policy rate unchanged. The Fed refrained from making significant changes to its policy statement from the November meeting, reiterating that it will assess incoming data, the evolving outlook and balance of risks when considering the extent and timing of additional rate adjustments.

"Based on my estimate that monetary policy is not far from a neutral stance, I prefer to hold policy steady until we see further evidence that inflation is resuming its path to our 2% objective,” Hammack said in explaining her decision to dissent.

Meanwhile, the revised SEP showed a majority of policymakers forecasted two more 25 bps rate cuts in 2025, down from four in September’s dot plot. In the post-meeting press conference, Fed Chairman Jerome Powell noted that they can be more cautious in reducing rates going forward and explained that a slower pace of cuts was reflecting expectations of higher inflation.

Speaking on the policy outlook over the weekend, Fed Governor Adriana Kugler said that their job on taming inflation is not yet done, while San Francisco Fed President Mary Daly noted that inflation is still “uncomfortably” above the Fed’s target.

When will FOMC Minutes be released, and how could it affect the US Dollar?

The FOMC will release the minutes of the December 17-18 policy meeting at 19:00 GMT on Wednesday. Investors will scrutinize the discussions surrounding the policy outlook.

In case the publication shows that policymakers considered holding the policy rate steady but voted for a cut with anticipation of a slowdown in policy easing in 2025, the immediate reaction could support the USD. On the other hand, the USD could come under pressure if the document suggests that policymakers are willing to continue with rate reductions once they are convinced that President-elect Donald Trump’s policies, especially regarding import tariffs, will not stoke inflation.

According to the CME FedWatch Tool, markets are currently pricing in a nearly 90% probability of the Fed leaving the policy rate unchanged at the January meeting. This market positioning suggests that the USD doesn’t have a lot of room left on the upside. Additionally, investors could refrain from taking large positions based on FOMC Minutes and opt to wait until Friday’s December jobs report, causing the market reaction to remain short-lived.

Eren Sengezer, European Session Lead Analyst at FXStreet, shares a brief outlook for the USD Index:

“The Relative Strength Index (RSI) indicator on the daily chart declined below 60 on Monday, reflecting a loss of bullish momentum. On the downside, the Fibonacci 23.6% retracement level of the October-January uptrend forms key support for the USD Index at 107.00 ahead of 105.80 (Fibonacci 38.2% retracement) and the 105.80-105.50 area , where the Fibonacci 38.2% retracement and the 200-day Simple Moving Average is located.”

“Looking north, immediate resistance could be spotted at 109.30 (end-point of the uptrend) before 110.00 (round level, static level) and 110.60 (static level from November 2022).”