Further rate cuts in question as Fed policymakers deeply divided over December cut, minutes show

Core Viewpoint - The Federal Reserve's decision to cut interest rates in December was contentious, reflecting a divided stance among policymakers amid economic challenges, including a slowing labor market and elevated inflation [1][2]. Interest Rate Decision - The Fed reduced rates by 25 basis points for the third consecutive time, bringing the benchmark federal funds rate to a range of 3.5% to 3.75% [2]. - Two voting members dissented against the rate cut, advocating for maintaining rates, while one member favored a larger cut of 50 basis points [3]. Economic Outlook - A majority of participants supported the rate cut as a proactive measure to stabilize the labor market, although some expressed concerns about stalled progress towards the 2% inflation target [4]. - Some policymakers suggested that it might be appropriate to keep the target rate unchanged for a period following the recent cut [6]. Future Rate Cuts - Fed Chair Jerome Powell indicated that the policy level is nearing neutral, suggesting that further rate cuts may be paused as the Fed awaits new economic data [7]. - Policymakers noted that upcoming labor market and inflation data would be crucial for assessing the need for further rate reductions [10]. Economic Disparities - The minutes revealed concerns about a "K-shaped" economy, where spending patterns diverge significantly between high- and low-income households [13]. - Evidence indicated stronger spending growth among high-income households, while lower-income households were becoming more price-sensitive due to rising costs of essential goods and services [14]. Upcoming Meetings and Market Expectations - The next monetary policy meeting is scheduled for January 27 and 28, with an 85% probability that rates will remain steady, an increase from 67.1% a month prior [15][16].