By Howard Schneider
WASHINGTON (Reuters) - Federal Reserve officials have been signaling that further interest rate cuts are on hold for now given slowed progress on inflation and a still-strong U.S. economy, but minutes from the central bank's December meeting may show just how deeply that sentiment is shared among policymakers facing a newly uncertain economic environment under the incoming Trump administration.
After cutting rates by a quarter of a percentage point at the Dec. 17-18 meeting, Fed Chair Jerome Powell said policymakers could now be "cautious" about further reductions, and noted that some officials had begun approaching upcoming decisions as if they were "driving on a foggy night or walking into a dark room full of furniture" because of uncertainty around the impact of President-elect Donald Trump's tariff, tax and other proposals.
The minutes, to be released at 2 p.m. EST (1900 GMT) on Wednesday, may help clarify how policymakers will approach further rate reductions. Projections issued after the December meeting showed officials anticipating just a half percentage point worth of rate cuts this year, compared to a full percentage point as of September.
The minutes "are likely to fully reflect this relatively hawkish viewpoint," analysts from Citi wrote. "This would include discussion of concerns that inflation could remain persistently elevated if policy rates do not remain suitably restrictive," and perhaps discussion as well that the rate of interest needed to fully return inflation to the Fed's 2% target has moved higher.
"That would be part of the rationale for the committee now planning to slow the pace of rate cuts," the Citi team wrote.
In new comments on Wednesday, Fed governor Chris Waller said he still feels more rate cuts are coming this year, though the timing is uncertain after several months in which progress on lowering inflation "appears to have stalled."
"This minimal further progress has led to calls to slow or stop reducing the policy rate," Waller said in remarks to an Organization for Economic Cooperation and Development event in Paris. "However, I believe that inflation will continue to make progress toward our 2% goal over the medium term and that further reductions will be appropriate."
"The pace of those cuts," he said, "will depend on how much progress we make on inflation, while keeping the labor market from weakening."
The Fed reduced the policy rate by a full percentage point over its last three meetings of 2024, with the benchmark rate now set in a range of 4.25% to 4.5%.