The minutes of the Fed’s December meeting showed that most Fed officials believed that further rate cuts would be appropriate as long as inflation continued to decline, but they still had differences on when and by how much to cut rates.
Minutes of the Federal Open Market Committee meeting held on December 9-10, released in Washington on Tuesday, showed that policymakers faced difficulties in their recent decision, which slightly strengthened expectations that the Federal Reserve will keep interest rates unchanged when it meets again in January.
The minutes of the meeting released in Washington on Tuesday said: “At this meeting, some who supported lowering the policy rate indicated that the decision was difficult to balance, or that they might have supported keeping the target rate range unchanged.”
After the release of the meeting minutes, the probability of a rate cut in January, as predicted by federal funds futures contracts, slightly declined to around 15%.
Stephen Stanley, chief U.S. economist at Santander Capital Markets, said that although the committee was deeply divided, it ultimately voted in favor of cutting spending, which indicates that Chair Jerome Powell still has influence.
Stanley stated in his report to clients: “The committee could have taken any stance, and the fact that the Federal Open Market Committee ultimately eased monetary policy clearly indicates that Chair Powell advocated for a rate cut.”
At the beginning of this month, officials voted 9 to 3 to cut the benchmark interest rate by 0.25 percentage points for the third time, to a range of 3.5% to 3.75%. Federal Reserve Governor Stephen Millian voted against the decision, favoring a 0.5 percentage point cut; while the presidents of the Chicago Fed, Austan Goolsbee, and the Kansas City Fed, Jeff Schmitz, also voted against it, preferring to keep the rate unchanged.
The interest rate forecast for 2025 indicates that the divergence within the larger group of 19 policymakers will further deepen. Six officials expressed opposition to rate cuts, suggesting that the benchmark interest rate should remain at 3.75% to 4% by the end of this year – the same level as before the December meeting.
According to these projections, the minutes of the meeting indicated that some officials believed that “after lowering the target range at this meeting, it might be appropriate to keep the target range unchanged for a period of time.”
The minutes continued to show that policymakers were deeply divided over which posed a greater threat to the US economy, inflation or unemployment.
The minutes of the meeting noted that “most participants believed that adopting a more neutral policy stance would help prevent the possibility of a significant deterioration in labor market conditions.”
At the same time, the report continued to point out that “some participants noted that there were deeply rooted risks of high inflation and expressed that further lowering the policy interest rate in the context of high inflation levels might be misunderstood as a weakening of the commitment of policymakers to the 2% inflation target.”
After the meeting, Powell told reporters in an interview that the Federal Reserve has lowered interest rates to a level sufficient to prevent further deterioration of the labor market, while maintaining a rate high enough to continue to curb inflation.
The minutes of the meeting stated: “Some participants who favored or might support keeping the target range for the federal funds rate unchanged indicated that the release of a large amount of labor market and inflation data between the next two meetings would help determine whether a rate cut was necessary.”
