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Most Fed officials favored more rate cuts if inflation declines over time
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Minutes showed division on timing and extent of future interest rate cuts
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December vote was 9-3 to cut rates by a quarter percentage point
Most Federal Reserve officials saw additional interest-rate reductions as appropriate so long as inflation declines over time, though they remained divided over when and how far to cut, a record of the central bank’s December meeting showed.
Minutes of the Dec. 9-10 Federal Open Market Committee gathering, released Tuesday in Washington, pointed to the difficulty policymakers faced in their most recent decision, which modestly reinforced expectations the Fed will hold rates unchanged when they meet again in January.
“A few of those who supported lowering the policy rate at this meeting indicated that the decision was finely balanced or that they could have supported keeping the target range unchanged,” the minutes, released Tuesday in Washington, said.
Following the minutes’ release, the likelihood of a January cut based on federal funds futures contracts dropped slightly to about 15%.
The vote in favour of a cut from a finely divided committee showed Chair Jerome Powell’s continued influence, according to Stephen Stanley, chief US economist at Santander US Capital Markets.
“The Committee could easily have gone either way, and the fact that the FOMC eased is clear evidence that Chairman Powell pushed for a cut,” Stanley said in a note to clients.
Officials earlier this month voted 9-3 to lower their benchmark interest rate by a quarter percentage point for the third straight time, to a range of 3.5% to 3.75%. Governor Stephen Miran voted against the action in favor of a half-point cut, while Chicago Fed President Austan Goolsbee and Kansas City’s Jeff Schmid dissented in favor of keeping rates unchanged.
Rate projections for 2025 pointed to an even deeper split among the larger group of 19 policymakers. Six officials signalled their opposition to the rate reduction by recommending the benchmark rate should stand at 3.75% to 4% at the end of this year — where it stood before the December meeting.
In line with those projections, the minutes showed that some officials believed “it would likely be appropriate to keep the target range unchanged for some time after a lowering of the range at this meeting.”
While the median rate projection from officials released after the meeting pointed to one quarter-point cut in 2026, individual projections ranged widely. Investors expect at least two reductions in the coming year.
Deep Division
The minutes continued to point to considerable differences among policymakers over whether inflation or unemployment posed the greater peril to the US economy.
“Most participants noted that a move toward a more neutral policy stance would help forestall the possibility of a major deterioration in labor market conditions,” the minutes noted.
At the same time, it continued, “several participants pointed to the risk of higher inflation becoming entrenched and suggested that lowering the policy rate further in the context of elevated inflation readings could be misinterpreted as implying diminished policymaker commitment to the 2% inflation objective.”
Speaking to reporters following the meeting, Powell suggested the Fed had lowered rates enough to guard against a more serious deterioration in the labor market while leaving rates high enough to continue weighing on inflation.
Officials lacked the typical level of economic data due to the government shutdown that lasted for all of October and nearly half of November. Policymakers noted, however, that new data could help them in coming weeks.
“Some participants who favored or could have supported keeping the target range unchanged suggested that the arrival of a considerable amount of labor market and inflation data over the coming intermeeting period would be helpful in making judgments on whether a rate reduction was warranted,” the minutes said.
Since the meeting, fresh data has done little to resolve divisions at the Fed. In November unemployment rose to 4.6%, its highest level since 2021, and consumer prices increased by less than expected. Both releases bolstered the case for those supporting lower rates.
But the economy grew in the third quarter at an annualized rate of 4.3%, the fastest pace in two years, likely fanning worries over inflation for those who opposed the December cut.
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