The Federal Reserve's December 9-10 meeting minutes, released Tuesday, reveal a contentious debate among officials that culminated in a closely divided decision to lower interest rates. The Federal Open Market Committee (FOMC) opted for a quarter-percentage point rate cut to a range of 3.5%-3.75%, approved by a 9-3 vote, marking the highest level of dissent since 2019.
During the meeting, officials expressed a range of views on the necessity of supporting the labor market while balancing inflation concerns. The minutes disclosed that the choice to reduce rates was not straightforward, with some participants indicating they were on the edge of voting differently.
Most participants judged that further rate reductions might be appropriate if inflation declined as expected, yet there was uncertainty over the timing and extent of future cuts. Some officials suggested maintaining the current rate range for a period following the recent adjustment.
The economic outlook remained mixed, with confidence in continued moderate expansion, yet with potential risks including slow employment growth and persistent inflation. Despite the vote leaning towards another rate reduction, some officials preferred leaving rates steady to ensure sustainable progress toward the Fed's 2% inflation goal.
The vote was accompanied by a quarterly summary of economic projections and the 'dot plot' of rate expectations. Officials forecast potential further reductions by 2026 and 2027, aiming for a neutral rate near 3%.
Contributors to the inflation discussion included President Donald Trump's tariffs, believed to have a temporary effect expected to diminish by 2026. Economic data post-vote highlighted a sluggish labor market, with easing but still elevated inflation levels, while the overall economy showed strong performance, driven by a significant third-quarter GDP growth.
Still, many economic reports faced potential inaccuracies due to data gaps from the recent government shutdown, causing markets to anticipate no immediate rate changes in upcoming meetings. The holiday season saw minimal Fed communications, suggesting a cautious approach as the new year commences.