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In the minutes leading up to one of the most divided monetary policy votes in recent decades, U.S. rate-setters clashed at their meeting this month over whether to prioritize fighting inflation over the freezing labor market.
While many Federal Reserve policymakers said the latest data indicated President Donald Trump’s trade war would not trigger persistent price pressures, several rate-setters “pointed to the risk of a spike in higher inflation,” said minutes of the Dec. 9-10 meeting published Tuesday.
Many rate-setters expressed concern that the interest rate cut could be “misinterpreted” as a signal that the central bank is no longer committed to keeping price pressures under control, the minutes said.
The minutes detail a meeting when three voted against a decision to cut US borrowing costs by a quarter point to a range of 3.5 per cent to 3.75 per cent – ​​disagreement on a scale not seen since 2019. The last time there was greater disagreement was in the early 1990s.
Chicago Fed chief Austin Goolsbee joined his counterpart at the Kansas City Fed Jeffrey Schmidt in voting to keep borrowing costs in check. Fed Governor Stephen Miron, a Trump ally, reiterated his call for a deeper 0.5 percentage-point cut.
The so-called dot-plots, which show US rate-setters’ projections for borrowing costs and the economy, indicated that the other four regional Fed chairs would have favored keeping interest rates steady in an effort to cool persistently elevated consumer price increases.
The minutes also reveal that of the nine rate-setters who supported the cut, “some” said “the decision was fairly balanced or they could have supported keeping the target range unchanged”.
At 2.8 percent, personal consumption expenditure inflation for September remains well above the Fed’s target level of 2 percent.
A separate report on consumer prices for October suggested inflation pressures may be easing. However, many economists say the decline was partly caused by flaws in data collection caused by the recent government shutdown and the methodology used by the Bureau of Labor Statistics to produce the report.
Meanwhile, third-quarter growth data showed the US economy grew at a stronger-than-anticipated 4.3 percent annual rate.
The dissent against a cut in December – the lowest number of such votes in a third quarter – highlights the scale of the challenge facing Fed Chairman Jay Powell’s successor when he leaves the role in May 2026.
Trump said Monday that he would likely name his choice as Powell’s successor “sometime” in January.
Kevin Hassett, director of the National Economic Council and a close aide, is seen as the favorite for the role.
Former Fed Governor Kevin Worsh and current Governor Christopher Waller, who were among the central bank’s first leaders to call for rate cuts, have also been interviewed for the role.
Trump has expressed his desire to aggressively cut borrowing costs to win the nomination, with the president insisting that interest rates must remain below 1 percent to shore up the world’s largest economy.
But Powell signaled after the December vote that the chances of more cuts were high.
Several regional Fed chairmen who are most concerned about inflation will have voting rights in 2026 — including Beth Hammack of Cleveland, Laurie Logan of the Dallas Fed and Minneapolis Fed head Neel Kashkari.
The minutes also acknowledged that policymakers were concerned about the stigma attached to financial companies using a key Fed tool that aims to ease pressures in currency markets.
The standing repo facility or SRF was established in 2021 to keep short-term funding costs closer to official interest rates.
But Roberto Perli, a senior New York Fed official, told the Fed’s rate-setting board that on some days, “huge” amounts were borrowed at interest rates higher than the facility fees.
The minutes attributed the reluctance to use it to “misperceptions about the purpose” of the SRF, with market contacts calling for operations to be approved centrally and the $500 billion per day cap on use being eliminated.
Perley advised the Fed to resume bond purchases as early as this month in an effort to get ahead of an anticipated cash crunch during the early months of 2026 – a move that rate-setters approved.
