The last meeting of the year of the US Federal Reserve came as a whirlwind for the markets, with the members of the US central bank erasing two rate cuts from their base scenario for 2025 and leaving only two more cuts planned for the year as a whole. Now, the publication of the minutes of that meeting helps to understand the point of view of the members of the Federal Open Market Committee, in a meeting whose conclusion was not unanimous, and reflected the lack of agreement within the most powerful central bank. of the planet: Beth Hammack, the new president of the Cleveland Fed, voted against lowering rates, as was finally approved. Now, The minutes confirm that Hammack believes that the neutral rate is close to being reached in the United States.
Reach out and kiss the saint. The first meeting of the Federal Open Market Committee in which Beth Hammack participated as the new president of the Cleveland Fed ended with her as the only dissenting voice within the central bank. Hammack voted against cutting interest rates, as was ultimately done, and his arguments exemplify the debate that exists within the Federal Reserve.
“Chairwoman Hammack has dissented from cutting rates because she preferred to keep the target rate between 4.5% and 4.75%, due to the lack of progress in returning inflation to 2%, the strength of the economy and labor market and the general state of financial conditions,” the document explains. “In his opinion, interest rates are not far from neutralityand keep rates modestly restrictive for a time, to ensure that inflation returns to 2%,” the minutes state.
Thus, Hammack is the reflection of those who believe that lowering rates further can give an unwanted boost to inflation, and undo the efforts that have been made in recent years with one of the fastest rate increases in the world. history of the Fed.
Hammack’s concern is not exclusive: although the Committee decided to lower rates, the minutes confirm that the debate on the current situation of rates and inflation is hot, and that there is concern on the part of Fed members about a possible increase in rates. prices in the medium term. Specifically, the document points out that “almost all members considered that the upward risks of inflation had increased”, justifying this position in changes in trade and immigration policy. A reference to the change of government that the United States will experience with the return of Donald Trump to the White House.
The magnate has signaled his intention to use a unilateral tariff cannon against China, and allies such as Canada, with the aim of protecting the US economy. However, this protectionist policy could increase inflation, thus slowing down the process of lowering interest rates by the Fed, whose expectations were reduced by the monetary authority in its last meeting.
Thus, the minutes confirm the debate within the Fed and the concern of some of its members about possible inflationary surges, and this has been reflected in the document, which shows how “the members have indicated that the committee is already, or “is very close to considering it appropriate to slow down the pace of monetary policy easing.” So, The Fed confirms that rate cuts will be less likely from now onwaiting for new macroeconomic data that underpins the need to continue with this process.
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