Fed minutes show officials were in tight split over December rate cut

• The rate cut lowered the federal funds rate to 3.5%-3.75%, with projections showing only one more cut likely in 2026 and another in 2027
• Officials cited stalled progress toward the 2% inflation target in 2025 and temporary impacts from Trump's tariffs as key concerns
• Four new regional Fed presidents rotating into voting roles in 2025 mostly lean hawkish, potentially making future cuts even more difficult

Federal Reserve December Meeting Minutes Reveal Deep Division on Rate Cut

The Federal Reserve's December 9-10 meeting minutes, released early due to the New Year holiday, exposed significant disagreement among officials over monetary policy direction. The FOMC ultimately voted 9-3 to cut interest rates by 25 basis points, bringing the federal funds rate to 3.5%-3.75% - the most dissents since 2019.

Key Divisions:

Several officials who supported the cut described the decision as "finely balanced" and indicated they could have voted to hold rates steady. Those opposing the cut cited concerns that inflation progress had stalled in 2025 and wanted more confidence in achieving the 2% target.

Economic Outlook:

• Officials project moderate economic expansion continuing
• GDP surged 4.3% annualized in Q3, exceeding estimates
• Downside risks identified for employment; upside risks for inflation
• Trump's tariffs noted as inflationary but expected to be temporary

Future Rate Path:

The dot plot suggests one more cut in 2026 and another in 2027, targeting a neutral rate near 3%. However, some participants advocated keeping rates unchanged "for some time" following December's cut.

Market Implications:

Markets expect the Fed to pause rate cuts in upcoming meetings as policymakers assess incoming data. The committee's composition is shifting, with four new regional presidents rotating into voting positions, including Cleveland's Beth Hammack and Dallas's Lorie Logan, both expressing hawkish views.

Additional Action:

The Fed resumed its bond-buying program, acquiring $40 billion monthly in Treasury bills to address short-term funding market pressures and maintain "ample" banking system reserves. Current balance sheet stands at $6.6 trillion, down $2.3 trillion from peak levels.