Fed minutes show divisions over future rate cuts and inflation concerns

Minutes from the Federal Reserve’s Dec. 9-10 FOMC meeting show most officials favor further rate cuts if inflation eases, though they remain divided on timing and size. | Photo credit: SARAH SILBIGER/Reuters

Minutes from the Dec. 9-10 Federal Open Market Committee meeting, released Tuesday in Washington, highlighted the challenges policymakers faced in their latest decision, modestly boosting expectations that the Fed will keep rates unchanged when they meet again in January.

“Some of those who supported a cut in the policy rate at this meeting indicated that the decision was balanced or that they could have supported leaving the target rate unchanged,” according to the minutes released in Washington on Tuesday.

After the release of the minutes, the probability of a January downgrade on federal funds futures contracts fell slightly to around 15%.

The vote in favor of a cut by a finely divided committee showed the continued influence of Chairman Jerome Powell, said Stephen Stanley, chief U.S. economist at Santander US Capital Markets.

“The committee could easily have gone either way, and the fact that the FOMC relaxed is clear evidence that Chairman Powell was pushing for a cut,” Stanley said in a letter to clients.

Officials voted 9-3 earlier this month to cut their benchmark interest rate by a quarter of a percentage point for the third time in a row, to a range of 3.5% to 3.75%. Governor Stephen Miran voted against the action in favor of a half-point cut, while Fed President Austan Goolsbee of Chicago and Jeff Schmid of Kansas City disagreed with keeping rates unchanged.

Tariff projections for 2025 indicated even deeper divisions among the larger group of 19 policymakers. Six officials have signaled their opposition to the rate cut by recommending that the benchmark rate should be at 3.75% to 4% by the end of this year – where it stood before the December meeting.

In line with these forecasts, the minutes showed that some officials believed that “it would probably be appropriate to leave the target range unchanged for some time following a reduction in the range at this meeting.”

While projections released by officials after the meeting pointed to a quarter-point reduction by 2026, individual projections varied widely. Investors expect at least two cuts in the coming year.

Deep divisions

The minutes continued to highlight significant disagreements among policymakers over whether inflation or unemployment posed the greatest danger to the U.S. economy.

“Most participants noted that a move toward a more neutral policy stance would help prevent the possibility of a major deterioration in labor market conditions,” the minutes said.

At the same time, the report continued, “several participants highlighted the risk that higher inflation would become entrenched and suggested that further cutting the policy rate in the context of higher inflation rates could be misinterpreted as policymakers’ reduced commitment to the 2% inflation target.”

Speaking to reporters after the meeting, Powell suggested that the Fed had cut rates enough to protect against a more serious deterioration in the labor market, while keeping rates high enough to continue to weigh on inflation.

Officials did not have the typical level of economic data due to the government shutdown that lasted all of October and nearly mid-November. However, policymakers noted that new data could help them in the coming weeks.

“Some participants who were or could have been in favor of keeping the target range unchanged suggested that the arrival of a significant amount of labor market and inflation data over the coming period would be helpful in making a judgment on whether a rate cut was justified,” the minutes said.

Since the meeting, new data has done little to resolve the Fed’s divisions. In November, unemployment rose to 4.6%, the highest level since 2021, and consumer prices rose less than expected. Both publications strengthened the arguments for those supporting lower rates.

But the economy grew at an annual rate of 4.3% in the third quarter, the fastest pace in two years, likely fueling inflation concerns among those who opposed the December cut.

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Published on December 31, 2025