Fed minutes show policymakers see immigration, tariff shifts creating inflation uncertainty

The Federal Reserve’s policymaking arm on Wednesday released the minutes of its most recent meeting in which central bank officials noted that the uncertainty surrounding how President-elect Trump’s policies will be implemented is weighing on their outlook for inflation.

The Federal Open Market Committee (FOMC) is tasked with making decisions about monetary policy and consists of a rotating group of regional Federal Reserve Bank presidents who set the central bank’s target range for the benchmark federal funds rate.

Minutes from the Fed’s meeting in December, where policymakers lowered rates by 25 basis points to a range of 4.25% to 4.5%, showed uncertainty among FOMC members about the direction of economic conditions as well as future public policy shifts. Fed Chair Jerome Powell noted that the cut was a “closer call” because of stubborn inflation and the labor market softening, adding that the Fed may look to slow the pace of interest rate adjustments going forward.

“With regard to the outlook for inflation, participants expected that inflation would continue to move toward 2 percent, although they noted that recent higher-than-expected readings on inflation, and the effects of potential changes in trade and immigration policy, suggested that the process could take longer than previously anticipated,” the FOMC minutes said.

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The minutes added that several participants noted the process of disinflation may have stalled, or that there is a risk it could stall, leaving inflation above the Fed’s 2% target. The most recent consumer price index (CPI) reading came in at 2.7%, while the Fed’s preferred inflation gauge, known as the personal consumption expenditures (PCE) index, was 2.4%.

Other participants noted that positive sentiment in financial markets and momentum in economic activity could put upward pressure on inflation, while there was a consensus about policy uncertainty related to the incoming administration.

“All participants judged that uncertainty about the scope, timing, and economic effects of potential changes in policies affecting trade and immigration was elevated,” the FOMC minutes noted.

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Trump has called for mass deportations of illegal immigrants and recently pushed back on reports that his transition team was softening the tariff plans he outlined during the presidential campaign. Economists have raised concerns that those policies could put upward pressure on consumer prices, which FOMC members noted in the meeting minutes.

“Almost all participants judged that upside risks to the inflation outlook had increased. As reasons for this judgment, participants cited recent stronger-than-expected readings on inflation and the likely effects of potential changes in trade and immigration policy,” the minutes said.

Fed-watchers noted the high degree of uncertainty in the FOMC minutes regarding the course of interest rates, inflation and economic growth stemming from the new administration’s plans.

Jeffrey Roach, chief economist for LPL Financial, noted, “The word ‘uncertain’ or a derivation thereof was mentioned twelve times throughout the official record from the Federal Open Market Committee. Forcecasters find it increasingly difficult to model out the path for interest rates, growth, and inflation because of the uncertainty surrounding Trump policies still being developed.”