Federal Reserve officials have different views on the inflation outlook, and the policy path will be adjusted based on economic data.

At the December meeting of the Federal Reserve, officials engaged in heated discussions concerning the sustainability of inflation and had different views on the level interest rates could reach by 2025. Policymakers emphasized that monetary policy is not predetermined and will be adjusted based on economic data and policies of the Trump administration. According to minutes released on Wednesday afternoon, participants generally expect inflation to continue to approach the 2% target, but they also pointed out that recent higher-than-expected inflation data and potential changes in trade and immigration policies could prolong this process compared to previous expectations. The minutes stated, "Several officials believe that the process of inflation decline may temporarily stall or face risks of stalling." At the Federal Open Market Committee (FOMC) meeting on December 17-18, the committee voted to lower the target range for the federal funds rate by 0.25 percentage points to 4.25%-4.5%, marking the third consecutive rate cut. Due to continued inflation pressures, robust economic growth, and uncertainties in fiscal policy, officials expect future rate cuts to be gradual and slow. According to the updated summary of quarterly economic forecasts, Fed officials expect the median target range for the federal funds rate by the end of this year to be adjusted to 3.75%-4%, which is 0.5 percentage points lower than the current level. Previous dot plots showed a forecast of a one percentage point rate cut by 2025. Officials anticipate that inflation levels in 2025 will be higher than previously expected, with the year-end inflation rate reaching 2.5% calculated using the preferred price index of the Fed. The unemployment rate may see a slight increase this year, but at a slower pace than previously expected. In addition, the employment data for December will be released on Friday morning. Overall, Fed officials remain optimistic about the state of the US economy. The minutes noted, "Participants observed that economic activity continued to expand at a solid pace, particularly with consumer spending and other economic indicators performing better than expected. Consumption has benefited from a stable job market, rising real wages, and increased household net worth." In the next two years, the Republicans will control Congress, with key priorities including restricting immigration, lowering taxes and regulations, and imposing tariffs on trading partners. The minutes mentioned, "All participants believe that there is a high level of uncertainty regarding potential changes in trade and immigration policies, their scope, timing, and economic impact." The rate cut decision on December 18 was not unanimous. Cleveland Fed President Loretta Mester voted against the cut, preferring to keep rates unchanged. It is worth noting that after the rotation of voting rights in the FOMC in 2025, she will no longer be a voting member, but her concerns do not seem to be isolated. The minutes stated, "Some participants believe that there is reason to keep the target range for the federal funds rate unchanged. These participants pointed out that the risks of persistently high inflation in recent months have increased, emphasizing that monetary policy needs to create a financial environment consistent with a sustainable return to the 2% inflation target." Since the December meeting, inflation data for November was lower than expected but still high. Currently, the Fed's annual inflation target is 2%, measured by the personal consumption expenditures price index. The Fed will convene again on January 28-29, where the December employment and inflation data will provide further guidance. As of Wednesday, the rate futures market indicates a likelihood of less than 5% for a rate cut at the January meeting, with the highest probability of a single 0.25 percentage point rate cut in 2025.