Fed Signals Further Rate Cuts if Inflation Continues to Decline

The minutes from the December FOMC (Federal Open Market Committee) meeting reveal that most Federal Reserve officials consider further rate cuts in 2026 appropriate—if inflation keeps falling. However, some policymakers argue for holding rates steady for a while to assess the delayed effects of previous actions.

Majority of FOMC Members Support More Easing According to the minutes, “most participants judged that it would likely be appropriate to reduce the target range for the federal funds rate further if inflation continued to decline over time as expected.” Meanwhile, others advocated patience—arguing that keeping rates unchanged would help evaluate the impact of the three 25-basis-point cuts already made this year. This approach would also give policymakers time to build confidence that inflation is truly heading back toward the Fed’s 2% target. Some emphasized the lagged effects of monetary policy, especially on the labor market.

November Inflation Data Suggests Cooling Recent consumer price index (CPI) data showed year-over-year inflation at 2.7% in November, below the 3% forecast. Core CPI (excluding food and energy) came in at 2.6%. Still, New York Fed President John Williams warned that the looming U.S. government shutdown could distort upcoming data.

Fed: No Pre-Set Policy Path – Data Will Guide Decisions The minutes confirmed unanimous agreement among participants that monetary policy is not on a predetermined course. Decisions will be driven by incoming data, evolving economic conditions, and the balance of risks. Fed Governor Chris Waller noted that the labor market will remain a top priority in 2026. He added that while he doesn’t expect inflation to reaccelerate, employment trends suggest there may be room for further policy easing.

Markets Expect Rates to Hold Steady in January According to CME FedWatch, there is currently an 84% probability that the Fed will hold interest rates steady at the January FOMC meeting. Polymarket gives an even higher probability—86.5%—that there will be no change, with just 14% of participants betting on a 25 bps cut.

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