The Federal Reserve (Fed) forecasts a continued slowdown in inflation for 2025, although the pace may be slower than initially expected. Concerns surrounding policies proposed by the incoming Trump administration were highlighted in the latest minutes from the Federal Open Market Committee (FOMC) meeting held on December 17–18.
During the meeting, which led to a 25-point interest rate cut, committee members reviewed the state of the economy and inflation trends in 2024, with projections extending into 2025.
The committee noted a noticeable easing of inflation throughout 2024, which justified the initiation of rate cuts in September. However, by year-end, the rate of decline in inflation had lagged behind earlier predictions, influenced by some upward shifts in economic data. Consequently, inflation closed 2024 slightly higher than the committee had anticipated.
Looking ahead, the Fed now expects a similar trajectory in 2025, with a more gradual reduction in inflation. Members also acknowledged potential implications of policy changes as a new administration assumes office this year.
“Participants expected that inflation would continue to move toward 2%, though recent higher-than-expected inflation readings and potential shifts in trade and immigration policy suggest the process may take longer than previously anticipated,” the minutes noted.
The Fed has reiterated its November forecast that inflation will decline to 2% by 2027.
Regarding interest rates, the committee projects a slower pace of cuts in 2025, estimating a total reduction of just 75 basis points by year-end.
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