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Fed minutes show officials narrowly split on the December rate cut
Fresh minutes from the Federal Reserve’s December 9–10 meeting show policymakers viewed the decision to cut rates as a close call, with several officials signaling they could have backed no change. The debate is now shifting to how long the Fed should pause as inflation risks remain tilted higher and the data flow is still distorted by shutdown-related gaps.
The Fed cut rates 25 basis points to 3.50%–3.75% on a 9–3 vote, the most dissents since 2019.
Many officials said further cuts could be appropriate if inflation cools as expected, but some argued for keeping rates unchanged for a while after the move.
Policymakers saw upside inflation risks and downside employment risks, underscoring an increasingly two-sided mandate problem.
The Fed also signaled it will buy Treasury bills to rebuild reserves and ease short-term funding strains, stressing it’s about market plumbing, not stimulus.
A cut that looked decided — until the minutes
Minutes released Tuesday show the Fed’s December rate cut was more finely balanced than the headline vote suggested. While the committee ultimately approved a quarter-point reduction, the discussion revealed a central bank split over whether easing now was necessary, and how quickly — or whether — further cuts should follow.
Conditional dovishness, with a big asterisk
Most participants judged additional rate reductions would “likely be appropriate” if inflation continues to decline in line with expectations. But that support came with visible hesitation. Some officials said that, under their outlooks, it would be appropriate to hold the policy rate steady for some time after cutting in December — an early marker that the easing streak may not extend into early 2026.
The minutes also noted that a few officials who voted for the cut described the decision as “finely balanced,” and suggested they could have supported leaving rates unchanged.
Inflation up-risk, jobs down-risk — and disagreement on which matters more
Officials broadly expected the economy to keep expanding at a moderate pace, but they flagged risks pulling in opposite directions: inflation risks skewed to the upside, while the labor market faced downside risks. The divide inside the committee centered on how serious each threat is — and how much insurance policy easing is worth when inflation is still above target.
A group favoring no change said progress toward the Fed’s 2% inflation goal appeared to have stalled during 2025, or that they needed more confidence inflation was moving sustainably lower before endorsing further cuts.
Tariffs, growth strength, and a messy data backdrop
Policymakers discussed the inflation impulse from President Donald Trump’s tariffs, generally viewing the impact as temporary and likely to fade into 2026. Still, the minutes arrive against a backdrop of mixed signals: recent data show slow hiring but no surge in layoffs, while inflation is easing gradually but remains well above 2%.
Complicating matters is the data pipeline itself. The government shutdown created reporting gaps, and officials are still trying to reconstruct a clean read on underlying momentum from a patchy set of releases.
New voters, new complications
The voting roster is set to rotate in 2026, bringing in regional presidents who have signaled varying degrees of discomfort with further easing — another factor that could make consensus harder and keep the bar high for additional cuts.
The other headline: Treasury bill buying returns
The meeting also included a decision to restart Treasury bill purchases aimed at relieving pressures in short-term funding markets and rebuilding reserve balances. The Fed framed the operation as reserve management — a fix for market plumbing — rather than a return to full-blown quantitative easing aimed at stimulating the economy.
Officials warned that without purchases, reserves could fall meaningfully and slip below what the Fed considers “ample,” risking renewed stress in money markets.
What markets are taking from it
The message is less “the Fed is done” and more “the Fed is conditional.” Further cuts remain possible, but the committee is increasingly split, the inflation debate is not settled, and the quality of the incoming data is still impaired. That combination points to a higher probability of a pause — and a Fed that will need a clear signal to move again.
