Federal Reserve December Meeting Minutes: Deepening **disagreement** between rate cut supporters and hold proponents, uncertainty about the direction of next year's interest rates

The minutes of the Federal Reserve( Fed) meeting in December, released last week, clearly revealed the extent of disagreements surrounding interest rate policy. Despite a decision to cut rates by 25 basis points(bp) three weeks ago, the conflicting opinions among the attending members were much more severe than expected.

The Committee Divided Between Rate Cut Supporters and Holders

According to the minutes, most members believed that additional rate cuts would be appropriate if inflation shows a gradual decline as expected. However, some decision-makers expressed the view that the current benchmark rate should be maintained “for a considerable period” in the future.

In the previous month’s meeting, “many(many)” members supported maintaining rates throughout the year, but this time, some members who previously advocated halting rate cuts shifted to the rate-cutting camp. Notably, in the December vote, seven members— the largest in six years—opposed the existing decision, indicating that internal disagreements within the Fed have reached their worst level in 37 years.

Diverging Assessments of Economic Indicators

Members were conflicted over priorities between weak employment and rising inflation.

The majority supporting rate cuts emphasized that “recent months have seen an increased downside risk to employment,” and pointed out that a more neutral policy stance could help prevent a serious deterioration in the labor market. Many in this camp also judged that tariffs are less likely to cause persistent high inflation pressures.

Conversely, some members advocating for a hold focused on the risk of structural inflationary pressures intensifying. They worried that further rate cuts at the current high price levels could be misunderstood as a weakening of the Fed’s commitment to the 2% inflation target. They also mentioned that if inflation fails to return to the target, long-term inflation expectations could rise.

Disagreements Over the “Proactive” Nature of Monetary Policy

A minority of members argued that there was no clear additional data between the November and December meetings showing deterioration in the labor market, suggesting that December’s rate cut might have been premature. Conversely, supporters of rate cuts countered that sufficient labor market and inflation data would be available by the next meeting, making a preemptive move at this stage justified.

The minutes recorded that all participants agreed that monetary policy decisions are not pre-determined but will depend on the latest economic data, changing outlooks, and risk assessments.

Unanimous Agreement on Reserve Supply Measures

Unlike the highly divided views on interest rate policy, members unanimously agreed on the management of reserve balances(RMP). They judged that reserve balances had fallen below a sufficient level and stated that they would continue to purchase short-term government bonds if necessary to ensure stable reserve supply.

As the rate decision for early next year approaches, internal disagreements within the Fed still show no signs of narrowing. Market participants are closely watching upcoming employment and inflation data releases before the next meeting.