"Trade" Mentioned 8 Times, "Immigration" 4 Times... FOMC Minutes Express Concerns Over 'Trumplation'

Last December FOMC Minutes Released
Minutes Mention "Trade" 8 Times, "Immigration" 4 Times
Reaffirmed Cautious Monetary Easing Stance
Second-in-Command Waller Says "No Impact from Tariffs or Inflation"
Trump Policy Uncertainty... Fed Internal Forecasts Diverge

Members of the U.S. Federal Reserve (Fed) have expressed concerns about "Trumflation" (inflation caused by Trump's policies) and agreed that the pace of future interest rate cuts should be slowed. However, Christopher Waller, the Fed's "number two," stated separately that the impact of tariffs on inflation is limited and that additional rate cuts this year would be appropriate. As policy uncertainty grows under the second Trump administration, opinions among Fed members regarding the economic outlook are divided.

The minutes of the Federal Open Market Committee (FOMC) from December last year, released by the Fed on the 8th (local time), stated that "almost all participants judged that the upside risks to the inflation outlook had increased."

The minutes noted, "As the basis for this judgment, participants mentioned stronger-than-expected inflation indicators and the potential impact of changes in trade and immigration policies," adding, "Uncertainty has increased regarding the scope and timing of potential changes in trade, immigration, fiscal, and regulatory policies and their effects on the economy."

The minutes particularly mentioned the words "trade" and "immigration" eight and four times, respectively. There was no explicit mention of President-elect Donald Trump, who will be inaugurated on the 20th. Concerns were reflected that Trump’s tariff hikes and immigration policies would lead to higher import prices, increased labor costs, and thus inflation. U.S. CNN reported that Trump is expected to invoke the International Emergency Economic Powers Act (IEEPA) as anticipated to implement his universal tariff pledge.

Earlier, at the December FOMC meeting, the Fed lowered the benchmark interest rate by 0.25 percentage points to 4.24?4.5%, significantly reducing the expected rate cut for 2025 from 1 percentage point to 0.5 percentage points. The recently released minutes reaffirmed that concerns over the recent inflation rebound and Trumflation were the main reasons for slowing the pace of monetary easing. It was reported that the "vast majority" of the 19 members agreed on the "small cut" (0.25 percentage point rate cut) decision last month.

Regarding future inflation outlooks, Fed members saw short-term upside risks due to trade policies and expected inflation to slow to the 2% target only by 2027. The minutes stated, "The process may take longer than previously expected."

The minutes also reiterated that the pace of monetary easing would slow. It said, "In discussing the outlook for monetary policy, participants judged that the committee had reached or was close to an appropriate point to slow the pace of policy easing." It introduced members' remarks that policy rates had approached a "neutral value" compared to when the rate-cut cycle began in September last year, and that a more cautious and gradual approach should be taken in monetary policy decisions over the coming quarters.

However, Waller made public remarks that somewhat differed in tone from the FOMC minutes released that day. At an event held in Paris, France, he said, "Tariffs will not have a significant or lasting effect on inflation," and "Inflation will continue to progress toward the 2% target, and I support continued policy rate cuts in 2025."

Due to policy uncertainty under the second Trump administration, views on the future economic impact are divided even within the Fed. Former Fed Chair Ben Bernanke also predicted at the '2025 American Economic Association (AEA) Annual Meeting' held from the 3rd to 5th that the likelihood of Trump’s tariff and immigration policies pushing up prices is limited.

The market has increased bets on the Fed holding rates steady in the first half of the year. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on that day priced in a 95.2% chance that the Fed will hold rates steady at the FOMC meeting on the 28th?29th, up from 90.4% a week earlier. The probabilities of maintaining the current rate through March and May are 60.9% and 47.7%, respectively, while the chance of holding steady through June is 30.6%, each about 10 percentage points higher than a week ago.