FOMC minutes show Fed divided, cast doubt on December rate cut

A rate cut by the Fed in December appears less likely, as minutes from the latest meeting of the Fed’s policy committee showed its members sharply divided on how to proceed.

The minutes, released Wednesday, reflect what Fed Chairman Jerome Powell called “very different views” in a news conference following the committee’s October decision. At that meeting, members voted to cut the federal funds rate by a quarter of a percentage point in an effort to boost hiring amid a slowing labor market.

“Several participants estimated that further reduction in the target range for the federal funds rate may be appropriate in December if the economy develops as they expect over the next intervening period,” the minutes said. “Several participants suggested that given their economic outlook, it would likely be appropriate to keep the target range unchanged for the remainder of the year.”

The minutes highlighted deep divisions among FOMC members as they grappled with a dilemma: whether to keep interest rates high longer to fight inflation, or lower them quickly to prevent unemployment from rising.

The Fed is tasked with doing both, but persistently high inflation and slowing job growth are pushing the central bank in opposite directions. The chances of a December interest rate cut fell to about one in three in fifty after the minutes were released, according to CME Group’s FedWatch tool, which forecasts interest rate movements based on federal funds futures trading data.

Only one of the 12 members voted not to cut the federal funds rate, but the minutes showed that others opposed it.

“Many participants were in favor of lowering the target range for the federal funds rate at this meeting, some supported such a decision but would also have supported maintaining the level of the target range, and many were against lowering the target range,” the minutes said.

The minutes suggest that Fed members have become more reluctant to cut interest rates as inflation exceeds the Fed’s target of a 2% annual rate for the fifth straight year, with little sign that it will fall to the target rate any time soon.

Further complicating the Fed’s decision-making process is the 43-day federal government shutdown that ended last week. The lockdown closed statistics agencies and delayed and, in some cases, canceled key reports highlighting the state of the economy.

The Bureau of Labor Statistics’ November job creation and unemployment report will be delayed until after the Fed’s December 9-10 meeting, and its October report has been canceled entirely.

“A very divided Fed has a difficult decision to make, with just weeks before the next meeting and a lack of economic data to ponder,” Priscilla Thiagamurthy, an economist at BMO Capital Markets, wrote in a commentary.