The Federal Reserve’s October meeting minutes reveal mounting disagreement about whether another interest rate cut makes sense in December.
Powell’s team lowered rates by a quarter-point in late October to 3.75%-4%, but the minutes show deep divisions on what comes next.
Two dissents at that meeting hinted at the tension. Now, with inflation still stuck above 2% and the labor market showing early cracks, Fed officials are genuinely split on whether easing further is wise or risky.
The market had priced in a December cut as nearly certain; these minutes suggest that confidence was premature.
December rate cut becomes a genuine toss-up
The minutes don’t mince words about the uncertainty haunting December’s decision.
Most participants judged that further downward adjustments to the target range for the federal funds rate would likely be appropriate as the Committee moved to a more neutral policy stance over time, although several of these participants indicated that they did not necessarily view another 25 basis point reduction as likely to be appropriate at the December meeting.
Translation: The Fed wants to cut rates eventually, but not everyone agrees that December is the month.
Here’s the divide. Several officials thought pausing in December made sense because “progress toward the Committee’s inflation objective had stalled this year, as inflation readings increased.”
Others were worried about sending the wrong message, cutting when inflation hasn’t really fallen looks like the Fed is abandoning its 2% target. One dissenter, Jeffrey Schmid, wanted no cut at all in October.
Another, Stephen Miran, wanted a half-point cut instead of a quarter-point. That’s a 50 basis point spread in opinions. When your committee is that divided, December is genuinely uncertain.
Inflation remains the stubborn elephant. Core PCE sits at 2.8%, well above target. The Fed acknowledged that “tariff-related price effects” are still working their way through the economy, and some businesses are “waiting to adjust prices until tariff policies seem more settled.”
If companies hold back on passing through costs now, inflation could spike in early 2026. That scenario terrifies hawks like Schmid.
But downside risks to employment have risen. The minutes note that “downside risks to employment had increased in recent months” and that “the Committee was attentive to the risks to both sides of its dual mandate.”
Job gains slowed, unemployment ticked up, and the labor market “had gradually softened through September and October.” Doves worry that a hard landing is coming. Cut now, they argue, or risk unemployment spiraling.
What Wall Street should expect: Data dependence rules
The Fed made clear:
All participants agreed that monetary policy was not on a preset course and would be informed by a wide range of incoming data, the evolving economic outlook, and the balance of risks.
Translation: December is genuinely data-dependent.
Between now and December 10, investors will obsess over the jobs report (likely delayed due to October’s government shutdown), inflation prints, and consumer spending.
A weak labor report shifts odds toward a cut. Hot inflation data shifts the odds against one.
The market’s 50-50 view on December looks right. The Fed isn’t confident enough to commit, and that uncertainty will drive volatility through year-end.
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