In its latest minutes from December, the US Federal Reserve voiced concerns over persistent inflation and the potential economic impact of President-elect Donald Trump’s policies, CNBC reports.
Despite this cautious stance, US stocks largely shrugged off the warnings, indicating that investors may have already factored in inflation concerns and future rate cuts.
The Federal Reserve officials noted that inflation was likely to remain above their 2% target for a prolonged period. They also expressed unease about the potential effects of changes in trade and immigration policies under the incoming administration, with most participants acknowledging that risks to inflation had increased. As a result, the Fed signaled that it would likely slow down the pace of interest rate cuts, which could have significant implications for markets.
Despite these concerns, US stocks managed to post modest gains on Wednesday. The S&P 500 rose by 0.16%, and the Dow Jones Industrial Average increased by 0.25%. However, the Nasdaq Composite saw a slight dip of 0.06%, weighed down by tech stocks such as Palantir, Advanced Micro Devices, and MicroStrategy. The 10-year Treasury yield climbed to its highest level since April, reaching 4.730% during intraday trading, but stock markets remained relatively resilient.
It seems that investors had already priced in concerns about inflation, especially following the Fed’s December projections, which indicated only two quarter-point rate cuts in 2025. Fed Governor Christopher Waller provided some reassurance, stating that recent inflation was mainly driven by “imputed” prices like housing services, while “observed” prices for other goods showed signs of disinflation. If conditions align with his expectations, Waller indicated that he would support continuing to lower the policy rate in 2025.
