FED MINUTES: RATE CUTS STILL ON TRACK, BUT PROCEEDING WITH CAUTION
The Federal Reserve has just released the minutes from its December 9-10 meeting, revealing a central bank committed to further easing but with notable divisions and a more restrained outlook ahead.
The Fed delivered a 25-basis-point cut in December, bringing the federal funds rate to 3.5%-3.75%, but the discussion highlighted growing caution about the pace of future moves.
🥊 A Divided Committee
The decision saw a 9-3 vote, with three dissenters: one preferring a larger 50bp cut and two opting to hold rates steady. Even among supporters, several noted the choice was "finely balanced," reflecting deep debates over inflation risks versus labor market weakness.
🛑 Pause Likely in the Near Term
A key phrase in the minutes: some officials indicated it could be appropriate to "keep the target range unchanged for some time." Many emphasized the need for more confidence that inflation is sustainably returning to 2% before resuming cuts.
📉 Just One Cut Projected for 2026
The updated dot plot shows the median expectation for only one additional 25bp rate cut in 2026, followed by another in 2027. Markets hoping for aggressive easing will need to temper expectations.
🔍 Reasons for the Caution
- **Data Challenges**: The prolonged government shutdown disrupted key economic reports, leaving policymakers with incomplete information.
- **Resilient Economy**: Growth remains moderate, with upward revisions to some 2026 GDP forecasts reducing the urgency for aggressive stimulus.
- **Inflation Concerns**: Upside risks from potential fiscal changes, trade policies, and sticky pressures have hawks pushing for patience.
THE BOTTOM LINE: Rate cuts aren't off the table—most officials still see further reductions as likely if inflation cooperates—but the Fed is clearly applying the brakes. Expect a data-dependent approach and potential market volatility as "higher for longer" echoes return in a cautious form.
