Federal Reserve internal division: Most members support further rate cuts, but hawks insist on holding steady

Source: BlockMedia Original Title: Fed Minutes “Possible Further Rate Cuts”… Internal Divisions Persist Original Link: The Federal Reserve(Federal Reserve) consensus among multiple members indicates that further rate cuts may be appropriate in the future. However, some members still insist on maintaining the current interest rate for a considerable period, and disagreements over monetary policy direction remain evident.

According to the publicly released December Federal Open Market Committee(FOMC) meeting minutes, “Most members believe that if inflation slows as expected, further rate cuts may be appropriate.” However, the minutes also clearly state that “some members believe that the policy rate should be maintained for a considerable period after the December meeting.”

At the December meeting, the Federal Reserve lowered the benchmark interest rate by 0.25 percentage points to 3.5%-3.75%, marking the third consecutive rate cut since September. The voting result was 9 to 3, indicating that the decision-making process was not smooth.

The minutes show that even among members supporting rate cuts, some indicated that “the decision is on an extremely delicate balance” or “could support holding rates steady.”

The minority opinions are also distinct. Federal Reserve Board member Stephen Mullen advocated for a 0.5 percentage point cut, voting against the measure; Chicago Fed President Austin Goolsbee and Kansas City Fed President Jeffrey Schmid favored maintaining the current rate.

Among the 19 Federal Reserve members’ outlooks for future rates, disagreements are also prominent. Six members believe the benchmark rate should remain at 3.75%-4% by the end of 2025, which is the level before the December rate cut. The median expectation points to an additional rate cut in 2026.

The minutes also reflect significant differences within the Fed regarding which risk is greater: inflation or employment. Most members believe that “shifting to a more neutral monetary policy helps prevent a sharp deterioration in the labor market.” However, some members worry that “in a high-inflation environment, further rate cuts could be interpreted as a weakening of the Fed’s commitment to the 2% inflation target.”

Federal Reserve Chair Jerome Powell stated after the meeting that “the size of the rate cut is sufficient to prevent a deterioration in the labor market but still at a level tight enough to restrain inflation.”

Additionally, the Fed lacked sufficient economic data at the time due to the government shutdown (covering all of October and half of November). The unemployment rate released later in November was 4.6%, a new high since 2021; inflation rose less than expected, supporting the case for rate cuts. However, the GDP growth rate for Q3(GDP) was 4.3% annualized, reigniting concerns about inflation.