FOMC Meeting Minutes Highlight the Fed’s Cautious Approach to Rate Cuts

Treasury yields fall with markets looking ahead to Friday’s labor data. Fed Governor Christopher Waller’s dovish comments this morning contributed to UST yields closing 1-2 bps lower today. Waller stated that he expects disinflation to permit more rate cuts and added that tariff policy proposals should not have a “significant or persistent effect on inflation…they are unlikely to affect my view of appropriate monetary policy.” Meanwhile, today’s hawkish Fed minutes had a muted impact on rates, and markets are now looking ahead to Friday’s labor data. Fixed-income markets will close early tomorrow in observance of a National Day of Mourning for late President Jimmy Carter.

U.S. private sector hiring missed expectations in December. Per today’s ADP employment data, the private sector added 122k jobs in December, below the 140k median forecast and the lowest level since August (103k). The struggling manufacturing sector contributed to the overall hiring slowdown, with manufacturing employment declining by 11k on the month. The underwhelming print comes ahead of Friday’s nonfarm payrolls report, where the U.S. is expected to have added 165k jobs in December vs. 227k in November. The unemployment rate is expected to remain flat at 4.2%.

Fed minutes show most Fed officials support cautious easing. December Fed meeting minutes were released today, and they highlighted a consensus among most FOMC members that mounting inflation risks warrant a slower rate cutting pace. Per the minutes, voters acknowledged that inflation “had eased substantially from its peak in 2022” but added that the “overall pace of disinflation had slowed over 2024.” Several voters observed that the disinflationary process may have even stalled. Looking ahead, officials believe that the process to reaching 2% target inflation levels could be delayed given possible changes to trade and immigration policy, positive financial market sentiment, and strong economic momentum. Given the balance of risks, many believed that the FOMC was “at or near the point at which it would be appropriate to slow the pace of policy easing.”