US Fed officials concerned over 'stalled' disinflation, tariffs: minutes

The central bank voted 11-to-1 last month in favor of cutting interest rates by a quarter point and signaled a slower pace of cuts ahead, raising concerns that interest rates may have to remain higher for longer.

The decision was taken against the backdrop of a small uptick in inflation over the last few months of the year, moving the Fed's favored inflation gauge away from its long-term target of two percent.

At the same time, growth has remained robust and the labor market relatively resilient, reducing the pressure on the Fed to cut rates swiftly.

The Fed's decision to cut rates to between 4.25 and 4.50 percent was not unanimous -- an unusual occurrence -- with Cleveland Fed president Beth Hammack voting to leave rates unchanged.

During the meeting, "several" members of the Fed's rate-setting committee raised concerns that the "disinflationary process may have stalled temporarily or noted the risk that it could," the Fed said in minutes of the meeting published on Wednesday.

"Almost all participants judged that upside risks to the inflation outlook had increased," it added.

Fed officials were also concerned about how to model the likely impact of changes to trade and immigration policy pledged by Donald Trump on the inflation fight -- although they did not refer to the Republican president-elect by name.

Trump's team has pledged to impose sweeping tariffs on goods entering the United States and to deport millions of undocumented workers, leading many economists to predict inflation could be higher than previously predicted, and growth lower.

Trump and his economic advisors have challenged those assumptions, insisting that his policies will be both disinflationary and pro-growth.

"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 Fed said.

Some officials chose to factor assumptions about trade and immigration into their economic forecasts, while others chose not to do so, and some refused to say whether or not they did.

A few participants also said it "might be difficult to distinguish more persistent influences on inflation from potentially temporary ones, such as those stemming from changes in trade policy."

Futures traders see a roughly 95 percent chance that the Fed will keep its key lending rate unchanged at the next rate decision later this month, according to data from CME Group.