The minutes from Fed’s December meeting revealed divided sentiment among policymakers regarding the latest rate cut. While the decision to lower rates was ultimately made, it was described as “finely balanced,” with some participants emphasizing the “merits” of pausing rate reductions given persistent challenges in curbing inflation.

The minutes highlighted a growing sense within the FOMC that monetary easing might need to slow. After a cumulative 100 basis points of cuts in 2024, participants noted that the Committee is “at or near the point at which it would be appropriate to slow the pace of policy easing.” Most agreed that a more cautious approach would be prudent when considering additional rate adjustments.

The inflation outlook remained a key area of focus. While participants expected inflation to gradually align with the 2% target, recent higher-than-anticipated inflation readings and uncertainty stemming from potential changes in trade and immigration policy raised concerns.

These developments suggest that the disinflation process may “take longer than previously anticipated”, with some participants observing signs that progress might have stalled temporarily.

Full FOMC minutes here.

Fed Governor Christopher Waller reaffirmed his support for continued rate cuts in 2025, while emphasizing that the pace will hinge on inflation progress and labor market stability.

In a speech today today, Waller noted that the median expectation from the latest Summary of Economic Projections suggests two 25-basis-point cuts this year, but highlighted the “range of views is quite large” within the FOMC, from no cuts to as many as five. But his “bottom-line message” is that “more cuts will be appropriate”.

Waller described the US economy as being on “solid footing,” with a labor market near the maximum-employment objective. “I have seen nothing in the data or forecasts” that suggests the labor market will dramatically weaken over coming months,” he added.

The governor pointed to steady progress on inflation but acknowledged upside risks, including geopolitical conflicts and new tariff proposals. “Tariff proposals raise the possibility that a new source of upward pressure on inflation could emerge,” he said. However, he downplayed the likelihood of tariffs significantly altering monetary policy, assuming their effects on prices are neither substantial nor persistent.

Full speech of Fed’s Waller here.

US economy concluded 2024 on a strong note, with PMI Services finalized at 56.8 in December, up from 56.1 in November and marking a 33-month high. Although below the preliminary estimate of 58.5, the services sector’s robust performance overshadowed the ongoing weakness in manufacturing. PMI Composite also rose to 55.4 from 54.9 in the prior month, confirming solid growth momentum.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, highlighted that “Business activity in the vast services economy surged higher in the closing month of 2024 on fuller order books and rising optimism about prospects for the year ahead”. The sector’s strength has buoyed GDP growth, which is expected to remain “robust” after registering a 3.1% expansion in Q3 2024.

Optimism is partly tied to expectations of business-friendly policies under the incoming Trump administration, including potential tax reforms, deregulation, and selective tariffs aimed at supporting domestic industries. Such measures have bolstered sentiment among service providers, with many forecasting faster growth in 2025.

However, Williamson cautioned that the economy’s current momentum might make Fed policymakers hesitant to aggressively lower interest rates. Financial services, in particular, have played a critical role in late 2024’s economic performance, fueled by expectations of lower borrowing costs. The challenge in the months ahead will be balancing continued economic growth with the potential fallout from a changing interest rate outlook.

Full US PMI services final release here.

Fed Governor Lisa Cook highlighted in a speech today that Fed can “afford to proceed more cautiously with further cuts”. She noted that risks to the dual mandate of price stability and maximum employment are now “roughly in balance”. But since September, “The labor market has been somewhat more resilient, while inflation has been stickier than I assumed”. Also, with the 100bps of rate cuts last year, Fed has already “notably reduced the restrictiveness of monetary policy. ”

Elaborating on the outlook, Cook highlighted progress in core goods pricing, which has eased due to better supply-demand balance. She expects housing services inflation, a significant contributor to elevated prices, to cool further in 2025 as slower rent growth filters through the system. However, she remains watchful of uneven progress, maintaining confidence that inflation will “gradually—if unevenly—return over time to our goal of 2 percent.”

Turning to the labor market, Cook described it as solid but moderating. High turnover and elevated job-switching seen earlier in the post-pandemic recovery have subsided, creating better balance between supply and demand for labor. “I do not see the labor market as a source of significant inflationary pressure,” she added, noting that wage growth disparities between job switchers and stayers have largely diminished.

Full speech of Fed’s Cook here.

Richmond Fed President Thomas Barkin expressed a cautiously optimistic outlook during remarks today, highlighting economic growth upside while noting inflation risks tied to labor market strength.

“How economic policy uncertainty resolves will matter. But, with what we know today, I expect more upside than downside in terms of growth,” he stated.

Barkin also flagged that hiring trends could add upward pressure on inflation if the job market strengthens further.

Barkin noted that financial markets appear more aligned with Fed’s projected slower pace of interest rate cuts this year, adding that there seems to be broader acceptance of persistently higher long-term interest rates.