Revelations in Today’s Released FOMC Minutes from December’s Meeting Three Weeks Ago
December 30, 2025
The dozen Federal Open Market Committee members lacked unanimity. Nine voted to to cut the rate by 25 basis points, but answering the question of whether to cut or not cut the rate after quarter percentage point reductions done at the previous two reviews had been a finely balanced decision. Two members in fact preferred leaving rates unchanged. Governor Miran again urged a bigger 50-basis point cut, and along with his public comments both before and after the vote, the decision was not a difficult one in his case.
Fed officials endeavor to avoid political influence in making monetary policy, but they do so by pursuing two goals that are enshrined in congressional law: to preserve price stability defined as a stable 2.0% rate of inflation and to maximize employment subject to the constraint of the first of these mandates. Determining the most appropriate policy continues to navigate through a tricky patch because the two goal point to differing interest rate responses. Inflation is expected to eventually converge on 2% within the policy time horizon, but forecast risks relative to the baseline scenario tilt to the upside and more so now than in October. Labor market tightness has loosened and is projected to get even looser eventually, with the jobless rate falling back to 4.2% by 2027. However, mirroring risks that surround the inflation forecast, one’s associated with future economic growth tilt to the downside and more so now than a few months ago.
So what are Fed officials to do during upcoming months. The following passage from the minutes are particularly illuminating:
Most participants judged that further downward adjustments to the target range for the federal funds rate would likely be appropriate if inflation declined over time as expected. With respect to the extent and timing of additional adjustments to the target range for the federal funds rate, some participants suggested that, under their economic outlooks, it would likely be appropriate to keep the target range unchanged for some time after a lowering of the range at this meeting [bolding added]. A few participants observed that such an approach would allow policymakers to assess the lagged effects on the labor market and economic activity of the Committee’s recent moves toward a more neutral policy stance while also giving policymakers time to acquire more confidence about inflation returning to 2 percent. 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.
Two wild cards, not found in the minutes’ text but nonetheless affecting future decisions, need noting. Number one, the composition of voting members at FOMC meetings will be changing. Among district presidents on the committee with voting privileges in 2025, four rotate out at the start of each new calendar year, that now being 2026, and will be replaced by other district presidents who were not among those with voting rights in 2025. The composition of the Board governors and the Chairman also may change. We know that Jerome Powell’s term as Chair ends in mid-May but do not yet know if he’ll stay on as a governor or decide to leave the Fed then. Through resignations, President Trump may get other opportunities to modify the composition of Fed governors.
Number two, FOMC officials approach each policy review with a clear mind. Unlike the two-year period between mid-2004 and mid-2006 when policy was on automatic pilot, each meeting’s decisions are decided on the basis of whatever fresh information is then known. There have already been two important data surprises since the FOMC met on December 9-10. Inflation was lower than assumed, and even more surprising, real GDP growth of 4.3% annualized in the summer quarter was much faster than had been expected. With plenty more incoming data ahead, one should look at FOMC minutes for what they are, namely an already delayed snapshot of what was perceived when the last decision was taken, which will be even older information at the times when the FOMC meets during the first half of the coming year.
That being said, the excerpt above states more unequivocally than I was expecting that it will take a pretty big shock to impel the Fed to cut rates again before the spring.
Copyright 2025, Larry Greenberg. All rights reserved.
Tags: Comment on FOMC Minutes
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Revelations in Today’s Released FOMC Minutes from December’s Meeting Three Weeks Ago
December 30, 2025
The dozen Federal Open Market Committee members lacked unanimity. Nine voted to to cut the rate by 25 basis points, but answering the question of whether to cut or not cut the rate after quarter percentage point reductions done at the previous two reviews had been a finely balanced decision. Two members in fact preferred leaving rates unchanged. Governor Miran again urged a bigger 50-basis point cut, and along with his public comments both before and after the vote, the decision was not a difficult one in his case.
Fed officials endeavor to avoid political influence in making monetary policy, but they do so by pursuing two goals that are enshrined in congressional law: to preserve price stability defined as a stable 2.0% rate of inflation and to maximize employment subject to the constraint of the first of these mandates. Determining the most appropriate policy continues to navigate through a tricky patch because the two goal point to differing interest rate responses. Inflation is expected to eventually converge on 2% within the policy time horizon, but forecast risks relative to the baseline scenario tilt to the upside and more so now than in October. Labor market tightness has loosened and is projected to get even looser eventually, with the jobless rate falling back to 4.2% by 2027. However, mirroring risks that surround the inflation forecast, one’s associated with future economic growth tilt to the downside and more so now than a few months ago.
So what are Fed officials to do during upcoming months. The following passage from the minutes are particularly illuminating:
Two wild cards, not found in the minutes’ text but nonetheless affecting future decisions, need noting. Number one, the composition of voting members at FOMC meetings will be changing. Among district presidents on the committee with voting privileges in 2025, four rotate out at the start of each new calendar year, that now being 2026, and will be replaced by other district presidents who were not among those with voting rights in 2025. The composition of the Board governors and the Chairman also may change. We know that Jerome Powell’s term as Chair ends in mid-May but do not yet know if he’ll stay on as a governor or decide to leave the Fed then. Through resignations, President Trump may get other opportunities to modify the composition of Fed governors.
Number two, FOMC officials approach each policy review with a clear mind. Unlike the two-year period between mid-2004 and mid-2006 when policy was on automatic pilot, each meeting’s decisions are decided on the basis of whatever fresh information is then known. There have already been two important data surprises since the FOMC met on December 9-10. Inflation was lower than assumed, and even more surprising, real GDP growth of 4.3% annualized in the summer quarter was much faster than had been expected. With plenty more incoming data ahead, one should look at FOMC minutes for what they are, namely an already delayed snapshot of what was perceived when the last decision was taken, which will be even older information at the times when the FOMC meets during the first half of the coming year.
That being said, the excerpt above states more unequivocally than I was expecting that it will take a pretty big shock to impel the Fed to cut rates again before the spring.
Copyright 2025, Larry Greenberg. All rights reserved.
Tags: Comment on FOMC Minutes
This entry was posted on Tuesday, December 30th, 2025 at 2:59 pm and is filed under Central Bank Watch. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.