Original Title: "Federal Reserve Meeting Minutes: 'Most' Officials Expect Further Rate Cuts After December, Some Advocate for 'A Period of Time' to Hold Steady"
Original Author: Li Dan, Wall Street Journal
The meeting minutes show that while overcoming significant internal divisions to decide to continue rate cuts three weeks ago, most officials expect that if the downward trend in inflation aligns with their expectations, further rate cuts may be appropriate in the future. However, some decision-makers believe that rate cuts should be paused for "a period of time," reflecting the Federal Reserve's cautious stance on rate cuts at the beginning of next year.
On Tuesday, Eastern Time, the Federal Reserve released the minutes from the monetary policy meeting held on December 9-10, stating that during discussions on the monetary policy outlook, participants expressed differing views on whether the Federal Open Market Committee (FOMC) policy stance is restrictive.
“Most participants believe that if inflation gradually declines as expected, it may be appropriate for further” rate cuts.
Regarding the magnitude and timing of further rate cuts, “some” participants indicated that based on their economic outlook, after the rate cut at this meeting, “it may be necessary to maintain the (federal funds rate) target range unchanged for some time.”
“A few participants noted that this approach would allow decision-makers to assess the lagged effects of the more neutral policy stance recently adopted by the (FOMC) on the labor market and economic activity, while also giving decision-makers time to be more confident about inflation returning to 2%.”
All participants agreed that monetary policy is not preset but will be formulated based on various latest data, the evolving economic outlook, and the balance of risks.
“Most” Participants Support December Rate Cut, While a Few May Support Holding Steady
Three weeks ago, as the market expected, the Federal Reserve cut rates by 25 basis points for the third consecutive FOMC meeting, but for the first time in six years, there were three dissenting votes on the rate decision. Among the dissenters, Trump-appointed Governor Milan continued to advocate for a 50 basis point cut, while two regional Fed presidents supported holding steady, and four non-voting officials also believed rates should remain unchanged, effectively resulting in seven opposing the decision. This number indicates the largest internal division within the Fed in 37 years.
The minutes also revealed divisions among the Federal Reserve's decision-makers regarding the December rate cut.
The minutes stated that participants noted that inflation rates have risen since the beginning of this year and remain at elevated levels, with existing indicators showing that economic activity is expanding at a moderate pace. They observed that job growth has slowed this year, and the unemployment rate has slightly increased as of September. Participants assessed that recent indicators are consistent with these conditions, while “the downside risks to employment have increased in recent months.”
Given the above context, “most” participants support a rate cut at the December meeting, while “some” lean towards maintaining rates unchanged. “Among those supporting the rate cut, a few hinted that this decision was made after careful consideration, or that they might have supported maintaining the (federal funds rate) target range unchanged.”
Participants supporting the rate cut generally believe that this decision is appropriate because the downside risks to employment have increased in recent months, while the upside risks to inflation have weakened or remained largely unchanged since early 2025.
The minutes show that decision-makers inclined not to cut rates in December are concerned about the inflation process; they either believe that the progress in reducing inflation this year has stalled or that more confidence is needed regarding inflation returning to the Fed's target of 2%. These participants also pointed out that if inflation does not return to 2% in a timely manner, long-term inflation expectations may rise.
The minutes further mentioned that “some” participants supporting or possibly supporting holding steady believe that a significant amount of labor market and inflation data will be released during the interval between the next two FOMC meetings, which will help determine whether a rate cut is necessary. A few participants believe that a rate cut in December is unreasonable because the data received during the interval between the November and December meetings did not indicate any significant further weakness in the labor market.
Most Participants Believe Rate Cuts Help Prevent Labor Market Deterioration, Some Point to Risks of Entrenched Inflation
Although internal divisions were exposed, the differences reflected in this meeting's minutes are not as severe as some external observers have suggested.
First, the minutes from the previous meeting in November showed that many participants believed it might be appropriate to maintain rates unchanged this year, while several believed it was appropriate to continue rate cuts. Senior Fed reporter Nick Timiraos, known as the "New Federal Reserve Correspondent," pointed out that many represents a larger number than several, but most officials still believe that rate cuts should occur in the future, regardless of whether it is in December.
Moreover, this meeting's minutes indicate that at the December meeting, most participants supported a rate cut that month, including some officials who previously leaned towards pausing rate cuts this month.
Secondly, the minutes also show considerable disagreement among Federal Reserve decision-makers regarding which poses a greater threat to the U.S. economy: inflation or unemployment. Most believe that rate cuts help avoid labor market deterioration. The minutes stated:
“In discussing risk management factors that may affect the monetary policy outlook, participants generally believe that the upside risks to inflation remain high, while the downside risks to employment are also high and have increased since mid-2025. Most participants noted that shifting to a more neutral policy stance would help prevent a potentially severe deterioration in the labor market. Among these participants, many also believe that existing evidence suggests that the likelihood of tariffs causing sustained high inflationary pressure has decreased.”
In contrast, officials supporting no rate cut emphasized the risks of inflation. The minutes stated:
“Some participants pointed out that there is a risk of inflation becoming entrenched, and they believe that further lowering the policy rate in the context of persistently high inflation data could be misinterpreted as indicating a weakening commitment by decision-makers to the 2% inflation target. Participants believe that careful weighing of risks is necessary and unanimously agree that solid long-term inflation expectations are crucial for achieving the committee's dual mandate.”
Reserve Balances Have Dropped to Adequate Levels
At the December meeting, the Federal Reserve initiated the Reserve Management Program (RMP) as Wall Street expected, deciding to purchase short-term government bonds at year-end to address pressures in the money market. The meeting statement at that time read:
“The (FOMC) committee believes that reserve balances have dropped to adequate levels and will begin purchasing short-term government bonds as needed to continue to maintain adequate reserve supply.”
This meeting's minutes also reiterated the condition of reserve balances reaching the threshold to initiate the RMP. The minutes stated,
In discussing issues related to the balance sheet, participants unanimously agreed that “reserve balances have dropped to adequate levels,” and the FOMC “will purchase short-term government bonds as needed to continue to maintain adequate reserve supply.”
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