Fed meeting minutes reveal significant divisions: many see no case for December rate cut, some express concern over disorderly stock market decline
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Fed meeting minutes reveal significant divisions: many see no case for December rate cut, some express concern over disorderly stock market decline
All participants agreed that monetary policy is not set in stone, but rather influenced by various latest data, evolving economic outlooks, and shifting risk balances.
Navigating Web3 tides with focused insightsBy Dan Li
The minutes from the Federal Reserve's most recent monetary policy meeting at the end of last month reveal serious divisions among policymakers over whether to cut interest rates in December. Those supporting a rate cut did not hold an absolute majority, while there was near unanimity that the balance sheet reduction (quantitative tightening, or QT) should be stopped. Regarding financial stability risks, some expressed concerns about disorderly declines in the stock market.
On Wednesday, November 19, Eastern Time, the Fed released the meeting minutes stating:
"In discussing the near-term path of monetary policy, participants expressed markedly different views on the most likely policy decision for the Committee's (FOMC) December meeting. Most participants indicated that it might be appropriate to lower rates further as the Committee gradually moves toward a more neutral policy stance."
"However, several suggested they did not necessarily see a 25-basis-point cut as appropriate at the December meeting. Several participants assessed that if economic developments over the period between the next two meetings met their expectations, it might be more appropriate to lower rates further in December. Many participants indicated that, based on their outlooks, maintaining the current target range for the federal funds rate through the end of this year might be appropriate."
All participants agreed that monetary policy is not on a preset course and would be influenced by incoming data, evolving economic prospects, and shifting risk balances.
Media noted that in the Fed’s conventional terminology, "many" refers to fewer people than "most" or "a majority." Therefore, the above wording indicates that those opposing another rate cut in December remained in the minority at the last FOMC meeting.
Nonetheless, the fact that multiple participants questioned the need for a December rate cut reflects a hawkish tilt within the Fed.
The policy statement released after the Fed's October 29 meeting showed that the FOMC decided to cut rates by 25 basis points for the second consecutive time. However, among the 12 voting members, two dissented from this decision. Unlike previous meetings, disagreements emerged both on the size of the rate cut and on whether further action should continue. One dissenter, Michelle Bowman—appointed by President Trump—wanted a 50-basis-point cut, while Kansas City Fed President Esther George favored holding rates steady.
Many See Limited Inflation Impact from This Year’s Tariff Hikes; Majority Warn Rate Cuts Could Worsen Inflation Risks
The hawkish sentiment within the Fed was reflected in the minutes, which noted that during discussions on risk management considerations,
Most participants believed that moving toward a more neutral policy stance would help avoid a sharp deterioration in labor market conditions. "Many of these participants also thought that given growing evidence suggesting this year’s tariff increases may have limited effects on overall inflation, the Committee should ease policy appropriately to address downside risks to employment."
Most participants pointed out that amid persistently high inflation readings and only a gradual cooling in the labor market, further rate cuts could heighten the risk of sustained elevated inflation or could be misinterpreted as signaling insufficient commitment by policymakers to the 2% inflation target.
Some Warn of Sharp Stock Declines if Markets Suddenly Reassess AI Prospects
The minutes revealed that in discussions on financial stability risks, some Fed officials expressed concern about "elevated asset valuations" in financial markets. The minutes stated:
"Some participants commented on the issue of elevated asset valuations in financial markets, with several emphasizing the risk of disorderly declines in equity prices, particularly in the event of a sudden reassessment of the prospects for artificial intelligence (AI)-related technologies."
A couple of participants also mentioned risks related to high corporate debt levels. These concerns reflect that, in setting monetary policy, the Fed is not only focused on inflation and employment but also closely monitoring financial stability conditions.
Nearly Unanimous Support for Ending Balance Sheet Reduction; Many Favor Increasing Short-Term Treasury Holdings
The prior meeting's statement announced that the FOMC decided to end its balance sheet reduction program on December 1, marking the conclusion of a QT process that began on June 1, 2022, after lasting three and a half years. The Fed's announcement indicated that after stopping QT in December, principal repayments from agency mortgage-backed securities (MBS) would be reinvested into short-term U.S. Treasury securities, effectively replacing maturing MBS holdings with short-term Treasuries.
The minutes released this Wednesday show that "almost all" participants agreed it was appropriate to stop balance sheet reduction on December 1, meaning nearly universal support for this decision.
Some market participants had previously worried that if the Fed waited too long to halt QT, overnight funding rates could become volatile due to liquidity pressures.
The minutes state that participants agreed recent tightening in money market conditions signaled that QT was nearing its end.
"Many participants noted that holding a higher proportion of short-term Treasuries could provide the Fed with greater flexibility in responding to changes in reserve demand or non-reserve liabilities, thereby helping maintain ample reserve levels."
"The New Fed Whisperer": Possibly a Narrow Majority of Policymakers Uneasy About December Cut
Nick Timiraos, a veteran Fed reporter known as "the new Fed whisperer," wrote that the October rate cut triggered strong opposition to a potential December cut.
Timiraos emphasized that the minutes show FOMC members expressed strong differences of opinion on what policy action should be taken at the December meeting, leading a growing number of Fed policymakers—possibly a narrow majority—to feel uneasy about cutting rates in December. He noted this was the most divided the FOMC has been in years regarding the next meeting’s decision.
Timiraos pointed out that the minutes indicate several Fed officials had already opposed the October rate cut, possibly including regional Fed presidents who do not currently have voting rights on the FOMC this year. Meanwhile, even some officials who supported the cut indicated they could accept standing pat, highlighting the depth of disagreement within the committee.
Timiraos also noted that regarding decisions beyond the December meeting, most Fed officials believe further rate cuts will be necessary.
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