Fed Minutes Show Officials Were in Tight Split over December Rate Cut

• The Federal Reserve (Fed) on Tuesday, December 30, 2025, released minutes from its highly divisive meeting earlier this month, which concluded with a vote to lower interest rates again that appeared to be an even closer call than the final vote indicated. Ultimately, the Federal Open Market Committee (FOMC) approved a quarter percentage point cut by a 9-3 vote, the most dissents since 2019, as officials debated over the need to support the labour market against concerns about inflation. The move lowered the key funds rate to a range of 3.5%-3.75%.
• However, concerns arose about the FOMC's future level of aggression. Officials expressed confidence that the economy would continue to expand at a “moderate” pace, while they saw downside risks to employment and upside risks to inflation. The extent of the two dynamics divided FOMC policymakers, with indications that the vote could have gone either way despite the six-vote victory for the cut.
• The faction favouring keeping the rate steady “expressed concern that progress toward the Committee’s 2 per cent inflation objective had stalled in 2025 or indicated that they needed to have more confidence that inflation was being brought down sustainably to the Committee’s objective.” Officials noted that President Donald Trump’s tariffs were boosting inflation, but they also largely agreed that the impact would be temporary and likely abate in 2026.
• Since the vote, economic reports have pointed to a labour market where hiring is still slow, but layoffs have not accelerated. On the prices side, inflation has been slowly easing but remains a distance away from the Fed’s 2% target. At the same time, the broader economy continues to perform well. Gross domestic product soared in the third quarter, rising at a 4.3% annualised pace that was well ahead of estimates and a half percentage point better than the strong second quarter.
• However, most of the data carries a significant caveat as reports are still trailing as government agencies round up data from the dark period during the government shutdown. Even the reports coming in that are more current, at least from official sources, are being weighed with caution due to the data gaps. Consequently, markets largely expect the FOMC to stay put over the next few meetings as policymakers weigh incoming data.
• Also at the meeting, the committee voted to resume its bond-buying program. Under the new setup, the Fed will be acquiring short-term Treasury bills in an effort to calm pressures in short-term funding markets. The central bank initiated the program by buying US$40Bn a month in bills, staying around that level for several months before downshifting. A prior effort to reduce the balance sheet saw the Fed cut its holdings by about US$2.3Tn to its current US$6.6Tn.

(Source: Reuters)