The meeting minutes show that while overcoming significant internal divisions to decide to continue cutting interest rates three weeks ago, most officials anticipated that further rate cuts would be appropriate if the downward trend in inflation followed their expectations. However, some policymakers believed that rate cuts should be paused "for a period of time," reflecting the Federal Reserve's cautious stance on rate cuts early next year.
On Tuesday, December 30th, Eastern Time, the Federal Reserve released the minutes of its December 9-10 monetary policy meeting. The minutes stated that during discussions about the monetary policy outlook, participants expressed differing opinions on whether the Federal Reserve's (FOMC) policy stance was restrictive.
Most participants believed that if inflation declines gradually as expected, further interest rate cuts might be appropriate.
Regarding the magnitude and timing of further interest rate cuts, "some" participants indicated that, based on their economic outlook, following this meeting's rate cuts, "it may be necessary to keep the target range for the federal funds rate unchanged for some time."
A few participants pointed out that this approach allows policymakers to assess the lagged effects of the FOMC's recent more neutral policy stance on the labor market and economic activity, while also giving them time to be more confident that inflation will return to 2%.
All participants agreed that monetary policy is not predetermined, but rather formulated based on the latest data, the evolving economic outlook, and the balance of risks.
A majority of the participants supported a rate cut in December, with a minority potentially supporting holding rates steady.
Three weeks ago, as expected by the market, the Federal Reserve cut interest rates by 25 basis points for the third consecutive FOMC meeting. However, for the first time in six years, three people voted against the rate decision. Among the dissenters, Governor Milan, handpicked by Trump, continued to advocate for a 50 basis point cut, while two regional Federal Reserve bank presidents supported keeping rates unchanged. Furthermore, the dot plot showed that four non-voting officials also believed that rates should remain unchanged, resulting in a total of seven people opposing the decision. This number represents the largest internal division within the Federal Reserve in 37 years.
The minutes of this meeting also revealed the divisions among Federal Reserve policymakers regarding a December rate cut.
The minutes stated that participants noted inflation had risen since the beginning of the year and remained at a high level, while existing indicators showed economic activity expanding at a moderate pace. They observed that job growth had slowed this year, and the unemployment rate had risen slightly through September. Participants assessed that recent indicators were consistent with these findings, while noting that "downside risks to employment have increased in recent months."
Given the above context, "most" of the participants supported a rate cut at the December meeting, while "some" preferred to keep the rate unchanged.
Among the participants who supported the rate cut, a few suggested that the decision was carefully weighed, or that they might have supported keeping the target range for the federal funds rate unchanged.
Participants who supported the rate cut generally agreed that the decision was appropriate, given that downside risks to employment have increased in recent months, while upside risks to inflation have diminished or remained largely unchanged since the beginning of 2025.
The minutes show that policymakers inclined not to cut interest rates in December were concerned about the inflation process. They either believed that the downward progress in inflation had stalled this year, or that more confidence was needed that inflation could fall back to the Fed's target of 2%. These participants also noted that if inflation fails to return to 2% in time, long-term inflation expectations could rise.
The minutes went on to say that "some" participants who supported, or might support, holding rates steady believed that a large amount of labor market and inflation data would be released between the next two FOMC meetings, which would help determine whether a rate cut was necessary. A few participants believed that a December rate cut was unreasonable because the data received between the November and December meetings did not show any significant further weakness in the labor market.
Most participants believed that interest rate cuts would help prevent a deterioration in the labor force, while some pointed to the deep-seated risks of inflation.
Although internal disagreements were exposed, the disagreements reflected in the meeting minutes were not as serious as some outsiders had suggested.
First, the minutes of the previous November meeting show that at that FOMC meeting, many participants believed it might be appropriate to keep interest rates unchanged this year, while several others thought it was appropriate to continue cutting rates. Nick Timiraos, a senior Fed reporter known as the "new Fed news agency," points out that "many" represented more than "several," but most officials still believed that rates should be cut in the future, regardless of whether it's in December or not.
The minutes show that at the December meeting, most participants supported a rate cut that month, including some officials who had previously favored pausing the rate cut that month.
Secondly, the minutes also revealed a significant division among Federal Reserve policymakers at their December meeting regarding whether inflation or unemployment posed a greater threat to the U.S. economy. Most believed that interest rate cuts would help prevent a deterioration in the labor market. The minutes stated:
In discussing risk management factors that could influence the outlook for monetary policy, participants generally agreed that upside risks to inflation remain high, while downside risks to employment are also high and have increased since mid-2025. Most participants noted that a shift to a more neutral policy stance would help prevent a potential severe deterioration in the labor market. Many of these participants also believed that current evidence suggests a reduced likelihood of tariffs causing sustained high inflationary pressures.
In contrast, Federal Reserve officials who supported not cutting interest rates emphasized the risks of inflation. The minutes stated:
Several participants noted the risk that high inflation could become entrenched, and argued that further cuts to policy rates amid persistently high inflation could be misinterpreted as a sign of weakened commitment to the 2% inflation target. Participants agreed that risks needed to be carefully weighed and unanimously agreed that solid long-term inflation expectations were crucial for achieving the Committee’s dual mandate.
Reserves have fallen to an adequate level.
At its December meeting, the Federal Reserve, as expected by Wall Street, initiated Reserve Management (RMP) and decided to purchase short-term Treasury bonds at the end of the year to address pressures in the money market. The meeting statement at the time read:
The Federal Reserve Committee (FOMC) believes that reserves have fallen to an adequate level and will begin purchasing short-term Treasury securities as needed to maintain an adequate supply of reserves.
The meeting minutes also reiterated the condition that the reserve balance must reach the threshold for triggering the RMP. The minutes stated,
When discussing balance sheet-related issues, participants agreed that "reserve balances have fallen to adequate levels" and that the FOMC "will continue to maintain an adequate supply of reserves by purchasing short-term Treasury securities as needed."
