Fed Minutes Show Deep Divisions on Future Rate Cuts
The central bank's December meeting records reveal a 9-3 vote for a rate cut, with officials split on the timing and necessity of further easing in 2026.
Federal Reserve officials were deeply divided during their December meeting over the decision to cut interest rates, with a notable faction expressing a preference to hold policy steady, according to minutes released Tuesday. The detailed account reveals that while the quarter-point reduction passed, the debate over the path forward for monetary policy in 2026 is far from settled.
The records from the December 9-10 meeting, where the Federal Open Market Committee (FOMC) lowered its benchmark rate to a range of 3.50% to 3.75%, show the decision was approved by a 9-3 vote. This dissent highlights a growing rift within the committee as it navigates a complex economic landscape.
While most officials indicated an expectation for additional rate cuts in the coming year, two members voted to maintain the previous rate, preferring to await more economic data before committing to further easing. In a countervailing show of dovishness, one official advocated for a more aggressive 50-basis-point cut to stimulate the economy.
"The minutes confirm a committee that is leaning toward easing but is by no means on a pre-set course," noted economists at Goldman Sachs Research. They anticipate a measured pace of easing in the first half of 2026, contingent on incoming inflation and employment data.
Market reaction was nuanced in thin holiday trading. US stock indexes, including the S&P 500 and Nasdaq 100, saw a slight downturn following the 2:00 p.m. release. In the bond market, the benchmark 10-year Treasury yield, which influences borrowing costs for everything from mortgages to corporate debt, rose 2 basis points to 4.13%, suggesting some investors interpreted the minutes as more hawkish than anticipated.
The internal debate reflects the central bank's dual challenges: nurturing economic growth while ensuring inflation continues its path back to the 2% target. Officials who favored a pause cited a resilient labor market and inflation that, while cooling, remains above their long-term goal. They argued for patience to assess the full impact of the three rate reductions enacted in 2025.
The majority, however, felt that with inflation showing consistent signs of moderation, policy could become less restrictive. Their outlook, as projected in December, still points toward at least one more rate cut in 2026. This contrasts with market participants, who are currently pricing in approximately 61 basis points of cuts next year, betting that a slowing economy will force the Fed's hand.
Investors are now closely watching for clues on the central bank's next move. The divisions revealed in the minutes mean that upcoming economic reports, particularly on consumer prices and employment, will be scrutinized heavily for their potential to sway the committee's fragile consensus. The discussion shows that while the tide has turned toward monetary easing, the timing and extent of future adjustments remain a key debate, keeping markets on edge as a new year of policy decisions begins.