Federal Reserve minutes highlight deep fissures at US central bank

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US interest rate setters disagreed at their meeting this month on whether or not combating inflation should be prioritized over cooling the labor market, minutes of one of the most divided monetary policy votes in recent decades highlighted.

While several Fed policymakers said the latest data suggested President Donald Trump’s trade war would not lead to sustained pressure on prices, several interest rate setters “cited the risk of rising inflation worsening,” minutes from the Dec. 9-10 meeting, released Tuesday, said.

The minutes added that many rate setters expressed concerns that rate cuts could be “misinterpreted” as a signal that the central bank is no longer committed to keeping price pressures under control.

The minutes recount a meeting in which three votes were against the decision to cut US borrowing costs by a quarter of a percentage point to a range of 3.5 per cent to 3.75 per cent – ​​opposition on a scale not seen since 2019. The last time there was more opposition was in the early 1990s.

Chicago Fed President Austan Goolsbee joined his Kansas City Fed counterpart Jeffrey Schmid in voting to keep borrowing costs on hold. Federal Reserve Governor Stephen Meiran, a Trump ally, repeated his call for a deeper cut of 0.5 percentage points.

The so-called dot charts, which show U.S. interest rate setters’ expectations of borrowing costs and the economy, indicated that four other regional Fed chairs would have supported keeping interest rates steady in an attempt to cool the growth of persistently high consumer prices.

The minutes also reveal that of the nine rate-setters who supported the cut, “a few” said “the decision was well balanced or they would have supported keeping the target range unchanged.”

At 2.8 percent, September PCE inflation remains well above the Fed’s 2 percent target.

A separate report on consumer prices for October indicated that inflationary pressures may ease. However, many economists say this decline is due in part to flaws in data collection caused by the recent government shutdown and the methodologies the Bureau of Labor Statistics used to prepare the report.

Meanwhile, third-quarter growth figures showed that the US economy expanded at a stronger-than-expected annual rate of 4.3 percent.

The opposition against the December cut – the third quarter-point cut in the largest number of votes – highlights the scale of the challenge facing Fed Chairman Jay Powell’s successor when he steps down in May 2026.

Trump said on Monday that he would likely announce his nominee to succeed Powell as president “sometime” in January.

National Economic Council Director and close ally Kevin Hassett is considered the favorite for this role.

Former Fed Governor Kevin Warsh and current Governor Christopher Waller, who was the first to call for lower interest rates among central bank leaders, were also interviewed for the role.

Trump has made his willingness to aggressively reduce borrowing costs a prerequisite for winning the nomination, with the president insisting that interest rates must be as low as 1 percent to boost the world’s largest economy.

But Powell indicated after the December vote that the bar to further cuts was high.

Several regional Fed chairs who care most about inflation will gain voting rights in 2026 — including Cleveland’s Beth Hammack, Dallas Fed’s Lori Logan, and Minneapolis Fed President Neel Kashkari.

The minutes also acknowledged that policymakers were concerned about the stigma associated with financial companies exploiting the Fed’s key tool aimed at reducing stress in financial markets.

The Standing Repo Facility, or SRF, was created in 2021 to keep short-term financing costs close to official interest rates.

But Roberto Perli, a senior New York Fed official, told the Fed’s interest rate-setting board that on certain days, a “significant” amount of borrowing is being done at interest rates that exceed what the facility charges.

The minutes blamed “misperceptions about the intended purpose” of the Silk Road Fund for reluctance to use it, with market contacts calling for operations to be centrally divested and the $500 billion per day usage limit to be scrapped.

Burley also advised the Fed to resume bond purchases as soon as this month in an attempt to overcome expected cash shortages during the first months of 2026 – a move approved by interest rate setters.