The following content comes from Nick Timiraos, a renowned journalist for The Wall Street Journal, known as the "Fed's mouthpiece." Original title: Fed’s October Rate Decision Fueled Pushback Over Possible December Cut

According to the minutes of the Federal Reserve's October meeting released Wednesday afternoon local time, policymakers are increasingly divided over whether to cut interest rates next month, leading to a growing number—potentially forming a slim majority—of officials expressing reservations about a December rate cut.

The minutes, which are typically released three weeks later, indicate: "Participants expressed distinctly different views on what policy action would be most appropriate at the December meeting."

Last month, the Federal Reserve decided to cut rates by 25 basis points with a 10-2 vote, lowering the target range to 3.75%-4%. However, the minutes reveal that several officials—likely local Fed presidents who participated in discussions but did not have voting rights—opposed this rate cut decision. Additionally, some officials who supported the cut indicated they could have accepted keeping rates unchanged.

The minutes showcase a rare division in recent years: the committee is seriously split on its next steps. The minutes note that "many" officials believe there is insufficient justification for a December rate cut—this group outnumbers the "several" officials who think a cut is "likely appropriate."

However, the minutes also indicate that after the December meeting, most officials believe further rate cuts will still be necessary.

The Federal Reserve's rate-setting committee consists of five voting members, rotating among seven governors appointed by the president and twelve local Fed presidents, all of whom participate in the discussions.

The divisions revealed in the minutes—without distinguishing between voting and non-voting participants—had already begun to surface before the minutes were released.

When policymakers decided to cut rates by 25 basis points in September, 10 of the 19 officials (a slim majority) included further cuts in their forecasts for October and December. However, this also means a significant minority opposed further cuts, citing improvements in the labor market or rising inflation pressures, with some even supporting a second cut in October.

The recent end of the government shutdown has exacerbated this division, leading to delays in employment and inflation reports that were supposed to help bridge the short-term rate decision controversy. Richmond Fed President Barkin admitted in an interview on Tuesday: "It's hard to reach a consensus among those with differing views without compelling data." Due to "the absence of new developments that could foster consensus," "it may need to be resolved through debate, and perhaps that's the way we will proceed."

Investors, who once viewed a rate cut at the December 9-10 meeting as a foregone conclusion, have recently begun to see the outcome as uncertain. After the Labor Department announced that the October employment data, originally scheduled for release on November 7, would be delayed until after the Fed meeting, the market's implied probability of a rate cut plummeted to about 33%.

Investors seem to believe that without new employment data revealing signs of economic weakness, officials' willingness to support a December rate cut will diminish.

Last month, two Fed officials voted against the rate cut for opposing reasons: Governor Mester advocated for a larger cut of 50 basis points, while Kansas City Fed President George argued that the case for a cut was insufficient.

The minutes emphasize that regardless of what the Fed decides in December, it may face at least three dissenting votes—three governors appointed by President Trump may oppose keeping rates unchanged, while at least three local Fed presidents may oppose a rate cut.

Fed Chair Powell faces an almost impossible task: bridging the divide and building consensus. Evercore ISI analyst Krishna Guha noted: "Unless luck strikes and the data miraculously points the way, he can only choose the lesser of two evils."

Despite criticism that the Fed's culture of seeking consensus fosters "groupthink," Governor Waller stated on Monday that next month will be markedly different: "Be prepared; you may witness one of the rare instances of 'non-groupthink' in the Federal Open Market Committee (FOMC)."

At the press conference following last month's meeting, Powell proactively mentioned that a December rate cut was not a certainty. He emphasized in an unusually candid tone: "Far from it," and stated, "An increasing number of members believe we should at least pause and wait for the next meeting to discuss."

The state of the labor market is at the core of these divisions. Currently, companies are neither hiring on a large scale nor conducting widespread layoffs.

Some policymakers are concerned that weak economic demand will lead companies to reduce their workforce. Waller pointed out on Monday that more companies "are starting to discuss layoffs." This group of officials is relatively less worried about inflation, believing that an economic downturn will limit companies' pricing power. They fear that overemphasizing persistent inflation risks could inadvertently push the economy into recession.

Another group of officials believes the economy will continue to grow moderately and is concerned that inflation rates, which have been above the Fed's 2% target for four consecutive years, may persist for another two years due to tariff-related price increases. These officials are wary of companies becoming emboldened by successfully passing on costs post-pandemic, keeping inflation rates at the current level just below 3%, making it difficult to return to the 2% policy target. Notably, this faction is expanding. In addition to George, it includes three other local Fed presidents with monetary policy voting rights this year, as well as Fed Governor Barr.

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