Investing.com – Minutes from the Federal Reserve’s latest meeting indicated that policymakers will adopt a slower pace of interest rate cuts ahead, according to analysts at Goldman Sachs.
President-elect Donald Trump’s plans for broad-based tariffs and mass deportations have led to particular uncertainty among Fed staff regarding the outlook for inflation, the minutes from the central bank’s December gathering showed.
Officials were worried that a recent cooling in price gains may be impacted by Trump’s policy changes, adding that the process of inflation easing down to the Fed’s eventual target of 2% “could take longer than previously anticipated.”
Participants flagged “continued progress on inflation but stress[ed] upside risks,” the Goldman Sachs analysts said.
These fears, coupled with the rate-setting Federal Open Market Committee already having slashed interest rates by a full percentage point in 2024, persuaded some members to opt for a “careful” approach to further reductions this year, the minutes said.
Following the release, bets that the Fed would choose to leave borrowing costs unchanged at its next couple of upcoming meetings were bolstered, with the first drawdown now not forecast until May at the earliest.
Markets are now looking ahead to the monthly US employment report on Friday, which could have further sway over the thinking of Fed staff. On Wednesday, private payrolls data for December slowed, although the weekly number of Americans filing for jobless benefits fell.
Meanwhile, in a note to clients, the Goldman Sachs analysts noted that the minutes did not include discussion regarding the Fed’s move to draw down its balance sheet. Some observers have suggested that the central bank may halt in 2025 an effort to decrease its holdings via a process known as quantitative tightening, or QT.
“Given the lack of concrete discussion by Fed officials, the continued assessment that reserves remain abundant, and a swift moderation in funding pressures to begin the year, we are shifting the timing of the second QT taper that we expect back a meeting,” the Goldman Sachs analysts wrote.
“We now expect Treasury runoff to run until the end of March (from January previously) but maintain our view that [mortgage-back securities] runoff will conclude at the end of June.”