The minutes of the Federal Reserve's policy meeting on January 28-29, released on Wednesday (February 19), showed that President Trump's policy proposal has raised concerns among the Fed about rising inflation. Decision makers generally believe that changes in trade and immigration policies, as well as geopolitical risks, may drive up inflation, while businesses generally indicate that they will pass on the cost of import tariffs by raising prices. This uncertainty reduces the possibility of the Federal Reserve cutting interest rates in the short term.

Inflation risk rises, increasing pressure on companies to raise prices

The minutes of the meeting showed that Federal Reserve decision-makers "generally pointed out the upward risks facing the inflation outlook," especially the possibility of disruptions to the supply chain caused by changes in trade and immigration policies, which could push up prices. Business contacts from multiple regions have stated plans to pass on the costs of potential tariffs to consumers. In addition, some inflation expectations indicators have recently risen, further exacerbating the concerns of the Federal Reserve.

The expectation of interest rate cuts has been postponed, and the market response has been lackluster

Although the Federal Reserve still believes that price pressure will ease in the coming months, the financial market response was lackluster after the release of the meeting minutes. The interest rate futures market expects that the Federal Reserve may make its first and perhaps only interest rate cut of 2025 in July. Decision makers unanimously agree that interest rates should remain unchanged until inflation clearly falls towards the 2% target. Ryan Sweet, Chief US Economist at Oxford Economics, pointed out that the Federal Reserve may wait until the dust settles on tariffs before providing clearer forward guidance, with only one rate cut expected in December this year.

Policy framework evaluation launched, inflation target remains unchanged

The Federal Reserve launched an evaluation of its policy framework at its January meeting, which is expected to end in late summer. Decision makers have made it clear that they will not change their commitment to the 2% inflation target or achieving full employment. In addition, the minutes of the meeting showed that "multiple" decision-makers suggested that considering the possibility of significant fluctuations in reserves due to the debt ceiling issue, it may be appropriate to slow down or pause the balance sheet reduction process.

Summary: Inflation concerns dominate policy direction, and the pace of interest rate cuts may be more cautious

The uncertainty of Trump's policies has intensified the Federal Reserve's concerns about rising inflation, reducing the possibility of interest rate cuts in the short term. The Federal Reserve will continue to closely monitor inflation trends and seek more flexible tools in policy framework assessments to address potential risks. In the future, with further clarification of trade policies and economic conditions, the policy path of the Federal Reserve may become clearer.