Fed rate cut divides policymakers at December meeting amid uncertainty

Federal Reserve Policymakers were closely divided on the decision to cut interest rates at their meeting in December, as the US economy faces a difficult set of risks, according to minutes from the latest policy meeting.

The Fed cut interest rates by 25 basis points for the third straight time at its December meeting, lowering the benchmark federal funds rate to a range of 3.5% to 3.75%. The decision came against the backdrop of a slowdown in the labor market High inflation Above the Fed’s 2% target, a dynamic that puts both sides of the central bank’s dual mandate at risk.

Two FOMC members dissented in favor of leaving interest rates unchanged, while one dissented in favor of a larger cut of 50 basis points. Furthermore, six officials have issued economic forecasts indicating they oppose the reduction.

“Most respondents” voted in favor of the cut, while “some” policymakers claimed this was an appropriate forward-looking strategy that would “help stabilize the labor market” amid the recent slowdown in job creation. However, others “expressed concern that progress towards the committee’s 2% inflation target has stalled.”

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“Some participants suggested that under Economic forecasts“It will likely be appropriate to keep the target price unchanged for some time after the range is lowered at this meeting,” the meeting minutes said.

Policymakers, including Federal Reserve Chairman Jerome Powell, have suggested that the central bank’s policy level is now closer to neutral and that further interest rate cuts may be on hold in the new year as they await new economic data, following a historic 43-day cut. government shutdown Which expired in November, delayed major economic reports in the final months of the year.

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Both Chicago Fed President Austan Goolsbee (pictured) and Kansas City Fed President Jeffrey Schmid dissented in favor of leaving interest rates unchanged. (Brendan MacDiarmid/Reuters/Reuters)

Some policymakers who opposed or questioned the decision to cut interest rates in December “suggested that the arrival of a greater body of labor market and inflation data over the next intervening period will be useful in making judgments about whether a rate cut is justified.”

Inflation in December and Labor market data It is scheduled to be released on January 9-13, as federal agencies tasked with collecting data and compiling economic reports return to their normal release schedule in the wake of the shutdown.

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Fed Governor Stephen Meiran called for a 50 basis point rate cut in December. (Michael Nagel/Bloomberg/Getty Images/Getty Images)

The minutes also showed that policymakers are watching for signs of a K-shaped economy as there is divergence in the economy. Spending patterns From high and low income families.

“The majority of respondents reported evidence of stronger growth in spending by high-income households, while low-income households have become increasingly price sensitive and are making adjustments to their spending in response to the huge cumulative increase in the prices of basic goods and services over the past few years,” the minutes said.

The Fed will hold its next monetary policy meeting on January 27-28 and the market sees a greater likelihood of keeping interest rates steady.

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The probability of the Fed leaving interest rates at their current range of 3.5% to 3.75% is currently 85%, up from 67.1% a month ago, according to the CME FedWatch tool.

Reuters contributed to this report.