Newly released minutes from the US Federal Reserve's December policy meeting have laid bare a significant and unusual division among officials, highlighting a fraught debate that preceded the latest quarter-point interest rate cut.
A "Finely Balanced" Decision
The documents, published on Tuesday, show that the decision to lower the benchmark rate was far from unanimous. Six officials outright opposed the cut, with two of those members formally dissenting during the vote of the Federal Open Market Committee (FOMC). Even among those who supported the move, some acknowledged the choice was "finely balanced" and that they could have justified leaving rates unchanged.
This marks the second consecutive meeting where policymakers have been openly split, an uncommon occurrence for the central bank. The debate saw officials arguing both for tighter and looser monetary policy, reflecting the complex risks facing the US economy.
The Data Dilemma and Future Outlook
The quarter-point reduction, approved on 10 December, brought the Fed's key overnight lending rate to a range of 3.5% to 3.75%. It was the third consecutive cut, driven by concerns over a slowdown in monthly job creation and a rising unemployment rate.
However, as rates approach a more neutral level—neither stimulating nor restraining the economy—consensus has fractured. The new economic projections released after the meeting indicate that only one further interest rate cut is anticipated next year. The Fed's official statement suggested it would likely hold steady for now, awaiting clearer data on inflation and employment.
This cautious stance is partly due to a significant gap in official economic data caused by the recent 43-day government shutdown. Some policymakers who were sceptical of the December cut argued that waiting for more labour market and inflation data would be prudent. The catch-up continues, with key jobs and consumer price figures for December due on 9 and 13 January.
Divided Views on Inflation and Employment
The minutes reveal the core tensions at the heart of the Fed's debate. "Most participants" ultimately backed the cut, with some viewing it as a proactive step to help stabilise the labour market following weaker job growth.
On the other side, a contingent of officials "expressed concern that progress towards the committee’s 2% inflation objective had stalled." This worry over persistent price pressures contributed to the deep divide. Some suggested that after this cut, it would be appropriate to keep rates unchanged "for some time."
The Fed's next meeting is scheduled for 27-28 January. Financial markets currently expect the central bank to leave interest rates on hold, adopting a wait-and-see approach as it digests the incoming flow of economic data.
