The US Federal Reserve on Tuesday released the minutes of its sharply divided meeting earlier this month, which concluded with a vote to cut interest rates again — a decision that appears to have been far closer than the final vote suggested.
The minutes, published a day earlier than usual due to the New Year holiday, showed that officials expressed a wide range of views during the December 9–10 meeting.
Ultimately, the Federal Open Market Committee (FOMC) voted 9–3 to cut the policy rate by a quarter of a percentage point, marking the largest number of dissenting votes since 2019, amid intense debate over the need to support the labor market versus concerns about inflation. The decision lowered the benchmark interest rate to a range of 3.5%–3.75%.
According to the minutes, “most participants judged that further downward adjustments to the target range for the federal funds rate would likely be appropriate if inflation continued to move down over time as expected.”
That view, however, was accompanied by clear reservations about the pace and timing of any additional moves.
The minutes added: “Regarding the extent and timing of additional adjustments to the target range, some participants noted that, given their economic outlooks, it could be appropriate to maintain the target range at its current level for some time following the reduction at this meeting.”
Officials expressed confidence that the economy would continue to grow at a “moderate” pace, while identifying downside risks to employment and upside risks to inflation. Differing assessments of these risks contributed to the division within the committee, with indications that the outcome could have gone either way despite the majority in favor of the cut.
The minutes revealed that “a few participants who supported the reduction in the target range at this meeting indicated that the decision was very finely balanced, or that they could have supported leaving the target range unchanged.”
The vote coincided with the quarterly update to the Summary of Economic Projections, including the closely watched dot plot showing each official’s expectations for the path of interest rates.
Projections from the 19 officials who attended the December meeting — including 12 voting members — pointed to the likelihood of one additional rate cut in 2026 followed by another in 2027, potentially bringing the policy rate down to around 3%, a level officials view as “neutral,” meaning neither restrictive nor stimulative for economic growth.
Those who favored leaving rates unchanged “expressed concern that progress toward the Committee’s 2% inflation objective may have stalled in 2025, or indicated a need for greater confidence that inflation was moving sustainably toward the target.”
Officials acknowledged that tariffs imposed by US President Donald Trump had contributed to higher inflation, but largely agreed that the effect would be temporary and likely fade during 2026.
Since the vote, economic data have shown that the labor market continues to experience slower hiring without a sharp acceleration in layoffs. Inflation has continued to ease gradually but remains above the Federal Reserve’s 2% target.
At the same time, the broader economy has continued to perform strongly. Gross domestic product grew at an annualized rate of 4.3% in the third quarter, beating expectations and accelerating by about half a percentage point from the already solid pace seen in the second quarter.
However, much of the data come with an important caveat. Some reports remain delayed as government agencies complete data collection following the shutdown period, and even more recent releases are being treated with caution due to these gaps.
As a result, markets largely expect the committee to keep interest rates unchanged over the next few meetings while awaiting additional data. The holiday period has been marked by limited public commentary from Fed officials, and the few available remarks have reflected a high degree of caution heading into the new year.
The composition of the committee is also set to change, with four new regional bank presidents taking on voting roles:
Beth Hammack, president of the Cleveland Fed, who opposed not only any additional cuts but also a prior reduction;
Anna Paulson, president of the Philadelphia Fed, who has voiced concerns about inflation;
Lorie Logan, president of the Dallas Fed, who has expressed reservations about cutting rates;
Neel Kashkari, president of the Minneapolis Fed, who said he would not have voted in favor of the October cut.
At the same meeting, the committee also voted to resume bond purchases. Under the new arrangement, the Fed will purchase short-term Treasury bills in an effort to ease pressures in short-term funding markets.
The central bank began the program with monthly purchases of $40 billion in Treasury bills, planning to maintain that pace for several months before gradually tapering it. A previous effort to shrink the balance sheet had reduced the Fed’s holdings by about $2.3 trillion, bringing them down to the current level of $6.6 trillion.
The minutes noted that failing to resume purchases — referred to in markets as quantitative easing — could result in “significant declines in reserves” to levels below what the Federal Reserve considers “ample” for the banking system.
