（Singapore, 31.12.2025）The U.S. Federal Reserve’s decision to cut interest rates in December came only after intense debate, with newly released meeting minutes revealing sharp divisions among policymakers over the direction of monetary policy and the risks facing the American economy.
Minutes from the Federal Open Market Committee’s (FOMC) December 9–10 meeting show that while most officials ultimately supported lowering rates, several described the decision as “finely balanced.” Some policymakers said they could just as easily have supported leaving interest rates unchanged, reflecting rising uncertainty as the Fed moves closer to what it considers a neutral policy stance.
The Fed lowered its benchmark overnight interest rate by a quarter percentage point to a range of 3.5% to 3.75%, marking the third consecutive cut. Officials agreed that softer job growth and a gradual rise in unemployment warranted some easing. However, the minutes make clear that consensus is weakening over how much further rates should fall, particularly as progress on inflation shows signs of slowing.
At the core of the disagreement was how to balance risks to employment against the danger of inflation becoming entrenched. Many participants argued that easing policy would help protect the labor market from further deterioration. They believed moving toward a more neutral stance could prevent a sharper rise in unemployment following recent signs of cooling in hiring.
Others were more cautious. Several officials expressed concern that inflation remains above the Fed’s 2% target and that further rate cuts could undermine confidence in the central bank’s commitment to price stability. Some warned that easing policy while inflation readings remain elevated might be misinterpreted by households and markets as a signal that inflation control is no longer the top priority.
These opposing views led to an unusually split vote. Three policymakers dissented at the December meeting, with one supporting a larger half-point cut and two preferring to keep rates unchanged. Such divisions have now appeared at two consecutive meetings, a rare development that highlights how finely balanced policy decisions have become.
Updated economic projections released after the meeting reinforced this picture of internal disagreement. Among the broader group of 19 Fed officials, six signaled they would have preferred rates to remain at 3.75% to 4% by year-end, effectively opposing the December reduction. While most policymakers still expect rates to move lower over time, they differ sharply on the timing and scale of future cuts.
The median projection now points to only one additional quarter-point cut in the coming year, suggesting a more cautious approach than investors had previously expected. Market pricing shifted following the release of the minutes, with traders trimming expectations for further easing and assigning only a small chance of a rate cut at the Fed’s January meeting.
Despite the divisions, analysts say the December decision underscores the continued influence of Fed Chair Jerome Powell. Some economists noted that the committee could easily have chosen a different outcome, suggesting Powell played a key role in steering policymakers toward a modest cut while avoiding a more aggressive move.
Powell has consistently emphasized that the Fed is not following a predetermined path. After the December meeting, he said the central bank believes it has done enough for now to support the labor market while keeping financial conditions restrictive enough to continue slowing inflation.
Complicating the policy outlook has been a lack of complete economic data. A 43-day U.S. government shutdown disrupted the normal release of key statistics, leaving policymakers without the usual depth of information when making their decision. Although data releases have since resumed, officials acknowledged that the gap continues to affect their assessments.
Several policymakers said that incoming labor market and inflation data during the period between meetings would be crucial in determining whether additional rate cuts are warranted. That data flow is now restarting, with December employment figures due on January 9 and inflation data scheduled for January 13.
Recent economic indicators have sent mixed signals. On one hand, unemployment rose to 4.6% in November, its highest level since 2021, while consumer price increases came in below expectations. These developments have strengthened the argument for those favoring further easing.
On the other hand, the U.S. economy grew at an annualized pace of 4.3% in the third quarter, the fastest expansion in two years. That strong growth has fueled concerns among more hawkish policymakers that underlying demand remains too firm, raising the risk that inflation pressures could persist.
With economic signals pointing in different directions and policymakers sharply divided, the Fed is widely expected to hold interest rates steady when it meets again on January 27–28. Officials appear inclined to pause and reassess, waiting to see whether inflation resumes its downward trend or whether the labor market weakens more than anticipated.
The December minutes underline just how delicate the Fed’s position has become. While the central bank has begun easing policy, the road ahead remains uncertain, with inflation and employment pulling policy in opposite directions. As a result, future decisions are likely to depend heavily on incoming data, with no clear consensus yet on how much further interest rates should fall.
