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 in the future if the downward trend in inflation met their expectations.
Article by: Li Dan
Article source: Wall Street News
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 while," 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, in discussing the outlook for monetary policy, participants expressed differing opinions on whether the policy stance of the Federal Reserve's Monetary Policy Committee (FOMC) was restrictive.
Most participants believed that if inflation were to decline 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, " it may be necessary to keep the target range for the federal funds rate unchanged for some time " after the rate cuts at this meeting.
“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 percent.”
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, 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 Fed presidents supported keeping rates unchanged. The dot plot also indicated that four non-voting officials believed rates should remain unchanged, resulting in a total of seven dissenters. This represents the largest internal division within the Fed 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" participants supported a rate cut at the December meeting , while "some" preferred to keep rates unchanged. "Among those who supported a rate cut, a few suggested that the decision was carefully weighed , or that they might have supported keeping the target range unchanged ."
Those who supported the rate cut "generally agreed that the decision was appropriate because 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 pace of inflation. They either believed that the decline in inflation this year had stalled, or that they needed more confidence that inflation would fall back to the Fed's 2% target. These participants also noted that if inflation failed 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 market, 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 often referred to as the "new Fed mouthpiece," points out that "many" represents 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 persistently high inflationary pressures."
In contrast, Fed 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 need to be carefully weighed and agreed that solid long-term inflation expectations are essential to achieving the Committee’s dual mandate."
Reserves have fallen to adequate levels.
At its December meeting, the Federal Reserve, as expected by Wall Street, initiated Reserve Management (RMP), deciding to purchase short-term Treasury securities at the end of the year to address pressures in the money market. The meeting statement at the time read:
The FOMC believes that reserves have fallen to adequate levels 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."
