WASHINGTON – The Federal Reserve on Tuesday released minutes from its highly divisive meeting earlier this month, which concluded with a vote to lower interest rates again that appeared to be an even closer call than the final vote indicated.
Officials expressed a variety of opinions during the Dec. 9-10 meeting, according to the summary provided a day ahead of its customary release due to the New Year’s holiday.
Ultimately, the Federal Open Market Committee approved a quarter percentage point cut by a 9-3 vote, the most dissents since 2019 as officials debated over the need to support the labor market against concerns about inflation. The move lowered the key funds rate to a range of 3.5%-3.75%.
“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.
With that, though, came misgivings over how aggressive the FOMC should be in the future.
“With respect to the extent and timing of additional adjustments to the target range for the federal funds rate, some participants suggested that, under their economic outlooks, it would likely be appropriate to keep the target range unchanged for some time after a lowering of the range at this meeting,” the minutes said.
Officials expressed confidence that the economy would continue to expand around a “moderate” pace, while they saw downside risks to employment and upside risks to inflation. The extent of the two dynamics divided FOMC policymakers, with indications that the vote could have gone either way despite the six-vote victory for the cut.
“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 minutes said.
The vote also came with a quarterly update of the committee’s Summary of Economic Projections, including the closely watched “dot plot” grid of individual officials’ rate expectations.
The 19 officials at the December meeting – 12 vote on rates – indicated the likelihood of another cut in 2026 then one more in 2027. That would take the funds rate down to near 3%, a level officials consider as neutral in that it neither restricts nor pushes economic growth.
The faction favoring keeping the rate steady “expressed concern that progress toward the Committee’s 2 percent inflation objective had stalled in 2025 or indicated that they needed to have more confidence that inflation was being brought down sustainably to the Committee’s objective.”
Officials said President Donald Trump‘s tariffs were boosting inflation, but they also largely agreed that the impact would be temporary and likely abate into 2026.
Since the vote, economic reports have pointed to a labor market where hiring is still slow but layoffs have not accelerated. On the prices side, inflation has been slowly easing but remains a distance away from the Fed’s 2% target.
At the same time, the broader economy continues to perform well. Gross domestic product soared in the third quarter, rising at a 4.3% annualized pace that was well ahead of estimates and a half percentage point better than the strong second quarter.
However, most of the data carries a significant caveat: Reports are still trailing as government agencies round up data from the dark period during the government shutdown. Even the reports coming in that are more current, at least from official sources, are being weighed with caution due the data gaps.
Consequently, markets largely expect the FOMC to stay put over the next few meetings as policymakers weigh incoming data. The holiday season was a quiet one for Fed official commentary and the few comments out there show mostly caution heading into the new year.
The committee’s complexion also is about to change, with four new regional presidents rotating into voting roles. They will be Cleveland President Beth Hammack, who has expressed opposition not only to additional cuts but also previous ones; Philadelphia President Anna Paulson, who has joined FOMC doves in expressing concern about inflation; Dallas President Lorie Logan, who has voiced concerns about cutting; and Minneapolis President Neel Kashkari, who said he wouldn’t have voted for the October cut.
Also at the meeting, the committee voted to resume its bond-buying program. Under the new setup, the Fed will be acquiring short-term Treasury bills in an effort to calm pressures in short-term funding markets.
The central bank initiated the program by buying $40 billion a month in bills, staying around that level for several months before downshifting. A prior effort to reduce the balance sheet saw the Fed cut its holdings by about $2.3 trillion to its current $6.6 trillion.
The minutes noted that unless the buying program, known in markets as quantitative easing, was restarted, it could result in a “significant declines in reserves” that would fall below the Fed’s “ample” regime for the banking system.
Correction: The vote came with a quarterly update of the committee’s Summary of Economic Projections. An earlier version misstated the name of the forecast.
