Federal Reserve's latest meeting minutes: Disagreements remain, but "most" officials advocate for continued rate cuts

Original Title: "Federal Reserve Meeting Minutes: 'Most' Officials Expect Further Rate Cuts After December, Some Advocate for 'A Period of Time' to Hold Steady"

Original Author: Li Dan, Wallstreet News

The meeting minutes indicate that while overcoming significant internal divisions to decide to continue rate cuts three weeks ago, most officials expect that if the downward trend in inflation aligns with their expectations, it may be appropriate to further cut rates in the future. However, some decision-makers believe that rate cuts should be paused for "a period of time," reflecting the Federal Reserve's cautious stance on rate cuts at the beginning of next year.

On Tuesday, Eastern Time, the Federal Reserve released the minutes from the monetary policy meeting held on December 9-10, stating that during discussions on the monetary policy outlook, participants expressed differing views on whether the Federal Open Market Committee (FOMC) policy stance is restrictive.

"Most participants believe that if inflation gradually declines as expected, it may be appropriate to further cut rates."

Regarding the magnitude and timing of further rate cuts, "some participants indicated that based on their forecasts for the economic outlook, after the rate cut at this meeting, it may be necessary to maintain the target range for the federal funds rate unchanged for some time."

"A few participants pointed out that this approach would allow decision-makers to assess the lagging effects of the more neutral policy stance recently adopted by the FOMC on the labor market and economic activity, while also giving decision-makers time to be more confident about inflation returning to 2%."

All participants agreed that monetary policy is not predetermined but will be formulated based on various latest data, the evolving economic outlook, and the balance of risks."

"Most" Participants Support December Rate Cuts, While Some May Prefer to Hold Steady

Three weeks ago, as the market expected, the Federal Reserve cut rates by 25 basis points for the third consecutive FOMC meeting, but for the first time in six years, there were three votes against the rate decision. Among the dissenters, Trump-appointed Governor Milan continued to advocate for a 50 basis point cut, while two regional Fed presidents supported holding steady, and four non-voting officials also believed rates should remain unchanged, resulting in a total of seven opposing the decision. This number indicates the largest internal division within the Fed in 37 years.

The minutes also revealed divisions among the Fed's decision-makers regarding rate cuts in December.

The minutes stated that participants noted that inflation rates have risen since the beginning of this year and remain at elevated levels, with existing indicators showing that economic activity is expanding at a moderate pace. They observed that job growth has slowed this year, and the unemployment rate has slightly increased as of September. Participants assessed that recent indicators are consistent with these conditions, while "downside risks to employment have increased in recent months."

Given this background, "most" participants support a rate cut at the December meeting, while "some" tend to prefer maintaining rates unchanged. "Among those supporting a rate cut, a few implied that this decision was made after careful consideration, or that they might have supported keeping the target range for the federal funds rate unchanged."

Participants supporting the rate cut generally believe that this decision is appropriate because downside risks to employment have increased in recent months, while upside risks to inflation have weakened or remained largely unchanged since early 2025.

The minutes show that decision-makers leaning towards not cutting rates in December are concerned about the inflation process; they either believe that progress in reducing inflation this year has stalled or that more confidence is needed regarding inflation returning to the Fed's target of 2%. These participants also pointed out that if inflation does not return to 2% in a timely manner, long-term inflation expectations may rise.

The minutes further mentioned that "some" participants supporting or possibly supporting holding steady believe that a significant amount of labor market and inflation data will be released during the interval between the next two FOMC meetings, which will help determine whether a rate cut is necessary. A few participants believe that a rate cut in December is unreasonable because the data received during the interval between the November and December meetings did not indicate any significant further weakening in the labor market.

Most Participants Believe Rate Cuts Help Prevent Labor Market Deterioration, Some Point to Risks of Entrenched Inflation

Although the internal divisions were exposed, the differences reflected in this meeting's minutes are not as severe as some outsiders have suggested.

First, the minutes from the previous meeting in November showed that many participants believed it might be appropriate to maintain rates unchanged this year, while some believed it was appropriate to continue cutting rates. Senior Fed reporter Nick Timiraos, known as the "New Fed Correspondent," pointed out that "many" represents a larger number than "several," but most officials still believe that rate cuts should occur in the future, whether in December or not.

Moreover, this meeting's minutes show that at the December meeting, most participants supported a rate cut that month, including some officials who previously leaned towards pausing rate cuts.

Secondly, the minutes also indicate considerable disagreement among Federal Reserve decision-makers regarding whether inflation or unemployment poses a greater threat to the U.S. economy. Most believe that rate cuts help avoid labor market deterioration. The minutes stated:

"In discussing risk management factors that may affect the monetary policy outlook, participants generally believe that upside risks to inflation remain high, while downside risks to employment are also high and have increased since mid-2025. Most participants pointed out that shifting to a more neutral policy stance would help prevent a potentially severe deterioration in the labor market. Among these participants, many also believe that existing evidence suggests that tariffs have reduced the likelihood of sustained high inflationary pressures."

In contrast, officials supporting not cutting rates emphasized the risks of inflation. The minutes stated:

"Some participants pointed out that there is a risk of inflation becoming entrenched, and they believe that further lowering the policy rate in the context of persistently high inflation data could be misinterpreted as indicating a weakening commitment by decision-makers to the 2% inflation target. Participants believe that careful weighing of risks is necessary and unanimously agree that solid long-term inflation expectations are crucial for achieving the committee's dual mandate."

Reserve Balances Have Fallen to Adequate Levels

At the December meeting, the Federal Reserve initiated reserve management (RMP) as Wall Street insiders expected, deciding to purchase short-term Treasury securities at year-end to address pressures in the money market. The meeting statement at that time read:

"The (FOMC) committee believes that reserve balances have fallen to adequate levels and will begin purchasing short-term Treasury securities as needed to maintain adequate reserves supply."

This meeting's minutes also reiterated the condition of reserve balances reaching the threshold to initiate RMP. The minutes stated,

In discussing issues related to the balance sheet, participants unanimously agreed that "reserve balances have fallen to adequate levels," and the FOMC "will purchase short-term Treasury securities as needed to maintain adequate reserves supply."

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