Minutes of latest Federal Reserve meeting reveal deep divide over interest rates

• Six officials opposed the December cut with two formally dissenting - an unusual outcome that has occurred at two consecutive meetings
• Some Fed members worried that progress toward the 2% inflation target had stalled, while others prioritized stabilizing a weakening labor market
• The 43-day government shutdown created data gaps that continue to complicate policymakers' risk assessments ahead of the January 27-28 meeting

Federal Reserve Minutes Reveal Deep Division on Interest Rate Policy

The Federal Reserve's December 9-10 meeting minutes exposed significant internal disagreement over monetary policy, despite ultimately approving a quarter-point rate cut. The decision lowered the benchmark overnight rate to 3.5%-3.75%, marking the third consecutive cut.

Key Divisions:

• Six officials opposed the cut entirely, with two voting members formally dissenting
• Even supporters acknowledged the decision was "finely balanced"
• Some members argued they could have supported keeping rates unchanged

Competing Concerns:

• Rate cut supporters cited the need to "stabilize the labor market" amid slowing job creation and rising unemployment
• Opponents worried that "progress towards the committee's 2% inflation objective had stalled"
• Some officials suggested holding rates steady "for some time" after this cut

Market Outlook:

The Fed projects only one rate cut in 2025, signaling a more cautious approach as rates near neutral levels (neither restrictive nor stimulative). The policy statement indicates the Fed will likely pause until new data shows either declining inflation or unexpectedly rising unemployment.

Data Considerations:

The 43-day government shutdown created information gaps that continue affecting policymakers' risk assessments. Officials emphasized the importance of upcoming labor and inflation data, with December jobs and CPI reports due January 9 and 13, respectively.

Market Expectations:

Investors anticipate no rate changes at the next FOMC meeting on January 27-28. The unusual occurrence of dissents favoring both tighter and looser policy at two consecutive meetings underscores the Fed's challenging balancing act between inflation control and employment support.