Washington: Newly released minutes from the US Federal Reserve’s December policy meeting show officials were sharply divided over the decision to cut interest rates, underscoring lingering uncertainty over inflation risks and the outlook for the labour market.
According to the minutes published on Tuesday, policymakers debated intensely during the December 9–10 meeting before ultimately approving a quarter-percentage-point rate cut by a 9–3 vote, lowering the federal funds target range to 3.5%–3.75%. It was the highest number of dissents on a rate decision since 2019.
The minutes show that while most officials agreed further easing could be appropriate if inflation continues to cool, there was significant disagreement over how quickly and how far rates should be reduced.
“Most participants judged that further downward adjustments to the target range for the federal funds rate would likely be appropriate if inflation declined over time as expected,” the document said.
However, it added that “some participants suggested that it would likely be appropriate to keep the target range unchanged for some time” following the December cut.
A finely balanced decision
The minutes reveal that even some policymakers who voted in favour of the rate reduction considered the decision finely balanced.
“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 document noted.
Officials broadly agreed that the US economy is continuing to expand at a moderate pace, but assessments diverged on the balance of risks. Many participants saw upside risks to inflation alongside downside risks to employment, though opinions varied on the severity of both.
Members who opposed the cut expressed concern that progress toward the Federal Reserve’s 2% inflation target had stalled in 2025 and said they needed greater confidence that price pressures were easing sustainably.
Inflation, tariffs and the outlook
Officials also discussed the inflationary impact of tariffs imposed under President Donald Trump, noting that while tariffs had contributed to higher prices, most participants expected the effects to be temporary and to fade into 2026.
Since the December meeting, economic data has painted a mixed picture. Hiring has remained slow, but layoffs have not accelerated significantly. Inflation has continued to ease gradually, though it remains above the Fed’s target.
At the same time, overall economic growth has been strong. Gross domestic product expanded at a 4.3% annualised rate in the third quarter, exceeding expectations and improving on the already solid performance in the previous quarter.
However, policymakers cautioned that recent data should be interpreted carefully, as several reports were delayed or affected by data gaps following a government shutdown.
Markets and future policy
Financial markets reacted cautiously to the release of the minutes, with US equities slightly lower. Traders modestly increased expectations that the Fed could cut rates again as early as April, though most expect policymakers to hold rates steady over the next few meetings.
The December meeting also included an update to the Fed’s Summary of Economic Projections, often referred to as the “dot plot.” The projections suggested one additional rate cut in 2026 and another in 2027, which would bring the policy rate closer to 3%, a level officials view as broadly neutral.
The Federal Open Market Committee’s composition will also change in 2026, with four new regional presidents rotating into voting roles, a shift that could influence the direction of future policy debates.
In addition, the Fed voted at the meeting to resume purchases of short-term Treasury bills to stabilise funding markets. Officials warned that without renewed buying, reserves could fall below levels considered “ample” for the banking system.
