Final Fed minutes of 2025 to shed light on policy divisions

The Marriner S. Eccles Federal Reserve Board Building in Washington D.C.

Minutes of the Federal Reserve’s Dec. 9 to 10 policy meeting are expected on Tuesday to shed fresh light on disagreements among policymakers over a decision to reduce short-term rates a third straight time and signal a near-term hold on rates in 2026.

The Fed’s quarter-point cut in the policy rate range, to 3.50 per cent to 3.75 per cent, drew three dissents - two from Fed bank presidents who felt no cut was needed, and one from Fed Governor Stephen Miran who, for the third time since he joined the Fed in September, was the sole proponent of a bigger half-point cut.

With inflation running above the Fed’s two per cent goal and the employment picture weakening, Fed Chair Jerome Powell said after the meeting that “you just have people who have strong views” about which of the two risks needs more policy attention.

“It’s not like the normal situation where everyone agrees on the direction and what to do,” he said.

The nine to three decision for the rate cut reflected “fairly broad support” among central bankers, Powell said, and put the Fed in position to “wait to see” how the economy evolves.

Fed projections indicate the two hawkish dissenters - Kansas City Fed President Jeffrey Schmid and Chicago Fed President Austan Goolsbee - had company, either among the seven non-voting presidents or among voters who swallowed their rate-cut skepticism to back Powell and the majority. Six of 19 policymakers penciled in 3.9 per cent as the appropriate 2025 year-end rate, above where the rate cut actually left it.

For next year, policymakers are even more broadly split about where rates should go, with several seeing no rate cuts as appropriate, and others more supportive of one, two or more.

Since the decision, a number of official economic releases that had been delayed by the government shutdown have tended to favor the doves, though economists say the reports had so much missing and imputed data they warrant plenty of skepticism.

The consumer price index rose a relatively muted 2.7 per cent in November from a year earlier, for instance, but most of the data came from prices collected in the second half of the month, after the government reopened, and when retailers were offering discounts for the holiday season.

A separate report showed the unemployment rate rose to 4.6 per cent, but it was derived using an unusual methodology because the shutdown had prevented the regular collection of data.

(Reporting by Ann Saphir; Editing by Andrea Ricci)