Federal Reserve Minutes: "Most" officials expect it to be appropriate to continue cutting interest rates after December, with some advocating for "a period of time" to hold steady

The meeting minutes show that while overcoming significant internal differences, the majority of officials expect that if the downward trend in inflation aligns with their expectations, it may be appropriate to further lower interest rates in the future. However, some decision-makers believe that rate cuts should be paused for "some time," reflecting the Federal Reserve's cautious stance on rate cuts early next year.

On Tuesday, Eastern Time on the 30th, the Federal Reserve released the minutes of the monetary policy meeting held from December 9 to 10, which stated 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” lower interest rates.

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

“A few participants pointed out that this approach allows decision-makers to assess the lagged 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 rising back 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 the December rate cut, with a few possibly favoring a hold

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

The minutes also revealed divisions among the Federal Reserve decision-makers regarding the December rate cut.

The minutes stated that participants noted that inflation has risen since the beginning of this year and remains at a high level, 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 “the downside risks to employment have increased in recent months.”

Given this background, “most” participants supported the rate cut at the December meeting, while “some” preferred to keep rates unchanged. “Among the participants supporting the rate cut, a few hinted that this decision was made after careful consideration, or that they might have supported maintaining the (federal funds rate) The target range remains unchanged.”

Supporters of interest rate cuts “generally believe that this decision is appropriate because the downside risks to employment have increased in recent months, while the upside risks to inflation have weakened or remained largely unchanged since early 2025.”

The minutes show that decision-makers inclined not to cut rates in December are concerned about the inflation process; they either believe that the progress in reducing inflation this year has stalled or that there needs to be more confidence that inflation can return 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 then mention that “some” participants who support or may support maintaining the current rates 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 show any significant further weakness in the labor market.

Most participants believe that a rate cut would help prevent labor market deterioration; some point to the entrenched risks of inflation

Although internal divisions were exposed, the disagreements 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 at that FOMC meeting believed it might be appropriate to maintain rates this year, while some believed it was appropriate to continue cutting rates. Senior Fed reporter Nick Timiraos, known as the “new Fed whisperer,” pointed out that the number represented by many exceeds that of several; however, most officials still believe that rate cuts should occur in the future, regardless of whether it is in December.

The minutes from this meeting indicate that in December, most participants supported a rate cut that month, including some officials who previously leaned towards pausing rate cuts this month.

Secondly, the minutes also show that there is considerable disagreement among Fed decision-makers regarding which poses a greater threat to the U.S. economy: inflation or unemployment. Most believe that a rate cut would help avoid deterioration in the labor market. The minutes state:

“In discussing the risk management factors that could affect the monetary policy outlook, participants generally believe that the upside risks to inflation remain high, while the 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 the likelihood of tariffs leading to sustained high inflation pressures has decreased.”

In contrast, Fed officials who support not cutting rates emphasize the risks of inflation. The minutes state:

“Some participants pointed out that there is a risk of inflation becoming entrenched and believe that further lowering the policy rate in the context of persistently high inflation data could be misinterpreted as suggesting that decision-makers' commitment to the 2% inflation target has weakenedParticipants believe that it is necessary to carefully weigh the risks and unanimously agree that solid long-term inflation expectations are crucial for achieving the committee's dual objectives."

Reserve balances have fallen to adequate levels

At the December meeting, the Federal Reserve initiated the Reserve Management Program (RMP) as Wall Street expected, deciding to purchase short-term government bonds at year-end to address pressures in the money market. The statement from that meeting read:

"(FOMC) Committee believes that reserve balances have fallen to adequate levels and will begin purchasing short-term government bonds as needed to maintain adequate reserve supply."

The minutes of this meeting also reiterated that the condition for initiating the RMP is that reserve balances have reached adequate levels. The minutes stated,

During discussions on balance sheet-related issues, participants unanimously agreed that "reserve balances have fallen to adequate levels," and the FOMC "will purchase short-term government bonds as needed to maintain adequate reserve supply."