Fed's Latest Meeting Minutes: Divergence Persists, But "Most" Officials Advocate Continued Rate Cuts
Original Title: "Fed Meeting Minutes: 'Most' Officials Expect Suitable for Further Rate Cuts After December, Some Advocate 'Standing Pat' for 'Some Time'"
Original Author: Li Dan, Wall Street View
The meeting minutes show that despite overcoming significant internal divisions three weeks ago to decide to continue cutting rates, most officials expect that if the downward trend in inflation meets their expectations, it would be appropriate to cut rates further in the future. However, some policymakers believe that rate cuts should be paused for "some time," reflecting the Fed's cautious stance on rate cuts early next year.
On Tuesday, November 30, Eastern Time, the Fed released the minutes of its December 9-10 monetary policy meeting, which stated that, in discussing the outlook for monetary policy, participants expressed different views on whether the Federal Reserve's FOMC policy stance was restrictive.
"Most participants believed that further rate cuts might be appropriate if inflation gradually declines as expected."
Regarding the magnitude and timing of further rate cuts, "some participants" stated that based on their economic outlook, after the rate cut at this meeting, it "may be appropriate to maintain the target range for (the federal funds rate) for some time."
"A few participants noted that this approach would allow policymakers to assess the lagged effects of the Committee's recent move toward a more neutral policy stance on the labor market and economic activity, while also providing policymakers time to gain more confidence that inflation is on track to return to 2 percent."
"Most" Participants Support Rate Cut in December, with a Few Possibly Supporting 'Standing Pat'
Three weeks ago, as expected by the market, the Fed cut rates for the third consecutive FOMC meeting by 25 basis points, but for the first time in six years, three voters dissented on the rate decision. Among the dissenters, Governor Bowman, appointed by Trump, continued to advocate for a 50 basis point cut, two regional Fed presidents supported standing pat, and, according to the dot plot, four non-voting officials also believed rates should remain unchanged, resulting in seven dissenters. With this number, the Fed saw its largest internal dissent in 37 years.
The minutes of this meeting also revealed divisions within the Fed's decision-making body regarding the December rate cut.
The minutes stated that participants noted an increase in the inflation rate since the beginning of the year, remaining at a high level, with current indicators showing that economic activity is expanding at a moderate pace. They observed that this year's employment growth has slowed, and the unemployment rate edged up as of September. Participants assessed that recent indicators were consistent with these conditions, while stating that "downside risks to the labor market have increased over the past few months."
Against this background, "most" participants supported a rate cut at the December meeting, while "some" leaned toward keeping the rates unchanged. "Among those supporting a rate cut, a few suggested that this decision was carefully balanced, indicating they could have supported maintaining the (federal funds rate) target range unchanged."
Supporting participants "generally viewed this decision as appropriate, as downside risks to the labor market have increased over the past few months, while upside risks to inflation have diminished since the beginning of 2025, or remained largely unchanged."
The minutes revealed that policymakers leaning towards no rate cut in December were concerned about the inflation process. They either believed that the progress on inflation downside this year had stalled or felt the need to be more confident that inflation could return to the Fed's 2% target. These participants also noted that if inflation does not promptly return to 2%, longer-term inflation expectations could rise.
The minutes then mentioned that "some" participants supporting or likely to support a wait-and-see approach believed that between the next two FOMC meetings, there would be a significant amount of labor market and inflation data released, aiding in judging the necessity of a rate cut. A few participants believed that a December rate cut was unwarranted as data received during the November and December meeting intervals did not show any significant further softening in the labor market.
Most Participants See Rate Cut as Guard Against Deterioration in Labor Some Point to Deep-Seated Inflation Risks
While exposing internal divergences, the divisions reflected in this meeting's minutes were not as severe as some outsiders had suggested.
Firstly, the minutes from the previous meeting in November showed that many participants believed it might be appropriate to maintain rates this year, with several indicating a preference for further cuts. Senior Fed reporter Nick Timiraos, known as the "Fed's newswire," pointed out that many outnumbered several, although most officials still believed in future rate cuts, whether in December or not.
However, this summary shows that at the December meeting, most participants supported a rate cut that month, including some officials who had previously leaned toward pausing rate cuts for the month.
Secondly, this summary also shows that there was a significant division among Federal Reserve policymakers at the December meeting regarding which poses a greater threat to the U.S. economy, inflation, or unemployment. Most believed that a rate cut would help prevent labor market deterioration. The minutes stated:
“In discussing the risk management aspects of the economic outlook that could affect monetary policy, participants generally judged that the risks to the outlook for inflation remained elevated and that the risks to the outlook for employment were also seen as having risen, on net, since mid-2025. Most participants noted that moving to a more neutral policy stance would help forestall a significant deterioration in labor market conditions. Among these participants, many judged that the available evidence suggested that the possibility of tariffs leading to sustained high inflation pressures had diminished.”
In contrast, officials favoring no rate cut emphasized the risk of inflation. The minutes stated:
“Several participants noted the risk that inflation pressures could become entrenched at an undesirably high level, and they judged that further monetary policy accommodation in an environment of elevated inflation readings could be misinterpreted as a signal that the Committee was willing to tolerate an inflation rate persistently above its 2 percent objective. Participants believed that risks needed to be carefully balanced and were united in the view that well-anchored longer-term inflation expectations were vital for achieving the Committee’s dual objectives.”
Reserve Balances Reduced to Adequate Levels
At the December meeting, as expected by Wall Street, the Fed initiated the Reserve Management Purchases (RMP) to address pressures in the money market by purchasing short-term Treasury bills at year-end. The statement at the time of the meeting read:
“The Committee (FOMC) judged that the level of reserve balances had declined to the point where it was prudent to begin purchasing short-term Treasury securities as needed to maintain an ample supply of reserves over time.”
This meeting summary also reiterated the condition for initiating RMP, stating,
“In their discussion of balance sheet matters, participants agreed that ‘reserve balances had declined to the point of being ample,’ and the FOMC ‘would begin purchasing short-term Treasury securities as needed to maintain an ample supply of reserves over time.’”
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