Comment on FOMC Minutes from October 28-29 Meeting
November 19, 2025
This was the FOMC meeting at which, according to Chairman Jerome Powell, strongly variant opinions emerged regarding the appropriate future monetary policy. The minutes state the obvious dilemma caused by a) U.S. inflation picking up earlier this year and still remaining more elevated than the committee’s ultimate target of 2.0%; but also b) employment growth has slowed significantly this year and faces downwardly skewed risks. To meet the Fed’s two policy mandates, there is no interest rate change that can promote one priority without jeopardizing progress toward the other.
The minutes reveal that committee members as individuals entered the meeting with a wide range of likely paths that the U.S. economy is likely to take over the coming year and consequently with different optimal interest rate paths that ought to be taken. If it turns out that the U.S. economy evolves very closely to the staff’s likeliest outcome, there was much wider agreement on interest rate decisions than if the individual scenarios prove more accurate than the collective mean view. There was also some disagreement over the severity of possible consequences if monetary policy turns out to be overly accommodative but cutting rates more too much and too soon versus a policy that in hindsight turns out to be too restrictive. A particular concern among members wanting to approach easing from the current level was the belief that as the already extensive period with inflation above 2.0% lengthens, a danger increases that long-term inflation expectations drift above the committee’s target. Yet another source of the diversity of opinions that emerged during the last FOMC meeting stemmed from a failure to agree on what federal funds rate level actually constitutes a neutral stance that neither would promote faster growth in aggregate demand, nor exert a drag on the economy’s growth rate.
The minutes are 20 pages long, but the bulk of the above policy nuances are discussed in two paragraphs on page 13:
In considering the outlook for monetary policy, participants expressed a range of views about the degree to which the current stance of monetary policy was restrictive. Some participants assessed that the Committee’s policy stance would be restrictive even after a potential ¼ percentage point reduction in the policy rate at this meeting. By contrast, some participants pointed to the resilience of economic activity, supportive financial conditions, or estimates of short-term real interest rates as indicating that the stance of monetary policy was not clearly restrictive. In discussing the near-term course of monetary policy, participants expressed strongly differing views about what policy decision would most likely be appropriate at the Committee’s December meeting. 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. Several participants assessed that a further lowering of the target range for the federal funds rate could well be appropriate in December if the economy evolved about as they expected over the coming intermeeting period. Many participants suggested that, under their economic outlooks, it would likely be appropriate to keep the target range unchanged for the rest of the year. 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.
In discussing risk-management considerations that could bear on the outlook for monetary policy, participants generally judged that upside risks to inflation remained elevated and that downside risks to employment were elevated and had increased since the first half of the year. Many participants agreed that the Committee should be deliberate in its policy decisions against the backdrop of these two-sided risks and reduced availability of key economic data. Most participants suggested that, in moving to a more neutral policy stance, the Committee was helping forestall the possibility of a major deterioration in labor market conditions. Many of these participants also judged that, with more evidence having accumulated that the effect on overall inflation of this year’s higher tariffs would likely be limited, it was appropriate for the Committee to ease its policy stance in response to downside risks to employment. Most participants noted that, against a backdrop of elevated inflation readings and a very gradual cooling of labor market conditions, further policy rate reductions could add to the risk of higher inflation becoming entrenched or could be misinterpreted as implying a lack of policymaker commitment to the 2 percent inflation objective. Participants judged that a careful balancing of risks was required and agreed on the importance of well-anchored longer-term inflation expectations in achieving the Committee’s dual-mandate objectives.
Copyright 2025, Larry Greenberg. All rights reserved.
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