The Federal Reserve's meeting in December sparked intense discussions among officials regarding the persistence of inflation and their varying views on the possible level of interest rates by 2025. Policymakers emphasized that monetary policy does not follow a predetermined path and will be adjusted based on economic data and governmental policies.

In the minutes released on Wednesday afternoon, participants generally expected inflation to continue moving toward the 2% targetHowever, they also noted that recent inflation data surpassing expectations and potential changes in trade and immigration policies could result in a longer timeline for achieving this goal than previously anticipatedThe minutes indicated, "Several officials believe that the process of declining inflation may temporarily stall or face the risk of stagnation."

During the Federal Open Market Committee (FOMC) meeting held from December 17 to 18, the committee voted to lower the federal funds rate target range by 0.25 percentage points to 4.25%-4.5%, marking the third consecutive meeting to implement a rate cut

Due to ongoing inflationary pressures, robust economic growth, and uncertainty in fiscal policy, officials expect future rate cuts to be slow and gradual.

The latest update to the quarterly economic projections has become a crucial guiding documentAfter careful analysis and discussions, Federal Reserve officials project that by the end of this year, the median federal funds rate target range will adjust to 3.75%-4%, representing a 0.5 percentage point reduction from the current levelThis subtle yet significant change reflects officials' comprehensive considerations of various factors, including economic growth and inflation expectationsNotably, previous dot plots suggested differing signals, predicting a potential one percentage point decrease in rates by 2025.

Federal Reserve officials, drawing upon a series of complex and finely-tuned economic models along with real market feedback, have revised their predictions for future economic indicators

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They anticipate that inflation in 2025 will be more severe than previously imaginedUsing the core price index, which the Federal Reserve consistently prefers for accurately reflecting consumer market price fluctuations, the year-end inflation rate is likely to climb to around 2.5%. Meanwhile, in the job market, although the unemployment rate has shown a slight upward trend this year, it is somewhat reassuring that the pace of increase will be noticeably slower than earlier estimatesParticularly noteworthy is the job data for December, which is set to be released on Friday morning and is closely monitored by the market.

Overall, Federal Reserve officials maintain an optimistic view of the U.SeconomyThe minutes noted, "Participants observed that economic activity continues to expand at a robust pace, particularly in consumer spending, which has generally exceeded expectationsConsumption benefits from a solid job market, rising real wages, and an increase in household net worth."

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The minutes mentioned, "All participants agreed that the uncertainty surrounding potential changes in trade and immigration policies, including their scope, timing, and economic impact, is quite high."

The decision to cut interest rates on December 18 was not unanimous, with Cleveland Fed President Loretta Mester casting a dissenting vote, preferring to keep rates unchangedImportantly, after the rotation of voting rights in 2025, she will no longer be a voting member, but her concerns do not appear to be isolated viewpoints.

The minutes reported, "Some participants indicated that there is a rationale for keeping the federal funds rate target range unchangedThey pointed out that the persistent high inflation risks 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 conclusion of that much-anticipated Federal Reserve meeting in December, the market's analysis of inflation data has deepened

While the inflation situation in November provided a glimmer of hope, with data falling below expectations and giving investors a brief sense of relief, a closer look reveals that inflation levels remain elevated, and the outlook is less than optimisticCurrently, the Federal Reserve is targeting an annual inflation rate of 2%, measured using the personal consumption expenditures price index, which accurately reflects price fluctuations on the consumer side.

The upcoming Federal Reserve meeting scheduled for January 28-29 has undoubtedly become a focal point as it is likely to set the tone for the future direction of monetary policyAt that time, the newly released December employment and inflation data will serve as a crucial compass, providing essential guidance for the Federal Reserve's decision-makingAs of Wednesday, feedback from the interest rate futures market indicates that participants remain cautious, with a slim chance of rate cuts in January, pegged at under 5%. Looking ahead to 2025, the market expectations appear relatively stable, suggesting that only a single rate cut of 0.25 percentage points is likely to occur.