WASHINGTON — The Federal Reserve on Tuesday released the minutes of a highly divided meeting held earlier this month that ended with a vote to cut interest rates again, a decision that appears to have been more tense than the final vote indicated.
Officials expressed a variety of opinions during the Dec. 9-10 meeting, according to the brief, submitted the day before the annual announcement due to the New Year holidays.
The Federal Open Market Committee ultimately approved the quarter-point cut by a 9-3 vote, the most opposed since 2019, as officials debated the need to support the labor market against inflation concerns. As a result of this measure, the key fund interest rate has been lowered to a range of 3.5-3.75%.
“Most participants concluded that further downward adjustments to the target range for the federal funds rate would likely be appropriate if inflation declines over time as expected,” the document said.
But it also raised concerns about how active the FOMC should be in the future.
“With regard to the scope and timing of further adjustments to the target range for the federal funds rate, some participants suggested that, based on the economic outlook, it would likely be appropriate to leave the target range unchanged for some time after the target range was lowered at this meeting,” the minutes stated.
Officials expressed confidence that the economy would continue to expand at a “moderate” pace, but said there were downside risks to employment and upside risks to inflation. The extent of the dynamic between the two has divided FOMC policymakers, with some saying the vote could have gone either way, despite the six-vote victory for those in favor of a rate cut.
“Several people who supported lowering the policy rate at this meeting expressed the opinion that the decision was delicately balanced, or that they could have supported leaving the target range unchanged,” the minutes read.
After the announcement, the stock price remained slightly negative. Traders have slightly increased their expectations that the Fed will cut rates further in April.
The vote also included a quarterly update of the committee’s summary of economic forecasts, including a “dot plot” grid that closely monitors each official’s interest rate forecasts.
The 19 officials present at the December meeting (12 voting on interest rates) signaled the possibility of another rate cut in 2026 and another in 2027. That would lower the fund rate to nearly 3%, a level officials consider neutral in that it neither limits nor promotes economic growth.
Opponents of keeping interest rates on hold “expressed concern that progress toward the Committee’s 2% inflation target is stalled in 2025, or suggested that they needed to have more confidence that inflation was sustainably brought down to the Committee’s target.”
Officials said President Donald Trump’s tariffs are pushing up inflation, but they also largely agreed that the impact is likely to be temporary and wane by 2026.
Since the vote, economic reports have noted that while employment remains depressed in the labor market, layoffs have not accelerated. On the price front, although inflation has eased moderately, it is still far from the Fed’s 2% target.
At the same time, the overall economy remains strong. Gross domestic product soared in the third quarter, growing at a much better-than-expected annualized rate of 4.3% and improving by half a percentage point over the strong second quarter.
However, most of the data contains important caveats. The report has not yet been released because the agency is collecting dark-era data during the government shutdown. Even more up-to-date reports, at least from official sources, are considered with caution due to data gaps.
As a result, markets largely expect the FOMC to remain unchanged over the next few meetings as policymakers consider upcoming data. The holiday season has been a quiet season for comments from Fed officials, and the few comments there have been mostly indicative of caution heading into the new year.
The committee is about to change its face, with four new regional presidents taking turns in voting roles. They would be Cleveland President Beth Hammack, who has voiced opposition not only to additional cuts but also to previous cuts. Philadelphia President Anna Paulson, who joined the FOMC, voiced concerns about inflation and became a dovish supporter. Dallas President Rory Logan has expressed concern about layoffs. Minneapolis President Neel Kashkari said he did not vote for the cuts in October.
Also at the meeting, the Committee resolved to restart the bond purchase program. Under the new regime, the Fed would acquire Treasury bills to relieve pressure on short-term money markets.
The central bank began the program by buying $40 billion in bills per month and maintained that level for several months before shifting down. In previous efforts to reduce its balance sheet, the Fed has reduced its holdings by about $2.3 trillion to the current $6.6 trillion.
The minutes said that unless the Fed’s purchases program, known in the market as quantitative easing, is resumed, it could result in a “substantial decline in foreign exchange reserves” that would leave the Fed less than “adequate” for the banking system.
Correction: This vote was accompanied by a quarterly update of the committee’s Economic Forecast Summary. In previous versions, predictions were named incorrectly.
