The Fed’s rate cut divided policymakers at the December meeting amid uncertainty

The Federal Reserve policymakers are widely divided over a decision to cut interest rates at their meeting in December as the US economy faces a challenging mix of risks, according to minutes of their latest policy meeting.

The Fed cut rates by 25 basis points for the third consecutive time at its December meeting, lowering the benchmark federal funds rate to a range of 3.5% to 3.75%. The decision took place against the background of a slow labor market with inflation has risen above the Fed’s 2% target, a volatility that puts both sides of the central bank’s dual mandate at risk.

Two voting members of the Federal Open Market Committee opposed leaving rates unchanged, while one dissented in favor of a 50 basis point cut. In addition, six officials have released economic figures that suggest they oppose the cuts.

A “majority of stakeholders” voted for the cuts, while “some” of those policymakers argued that it was an appropriate forward-looking strategy that would “help stabilize the labor market” amid the recent slowdown in job creation. However, others “expressed concern that progress toward the committee’s 2% inflation target has stalled.”

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“Some participants suggested that, under them economic theoriesit may be appropriate to keep the target rate unchanged for some time after the reduction of the range in this meeting,” the minutes said.

Policy makers including Fed Chairman Jerome Powell have suggested that the central bank’s policy rate is now close to neutral and that further cuts may still be in the offing in the new year as they await new economic data, after a 43-day hiatus. government shutdown which ended in November delayed important economic reports in the final months of the year.

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Chicago Fed President Austan Goolsbee (pictured) and Kansas City Fed President Jeffrey Schmid both disagreed in favor of leaving rates unchanged. (Brendan McDermid/Reuters/Reuters)

Some of the policymakers who opposed or doubted the decision to cut rates in December “suggested that the arrival of large numbers of labor market and inflation data in the next meeting would be useful in making decisions about whether the rate cut was appropriate.”

December inflation and labor market data will be released on Jan. 9 and Jan. 13, as government agencies tasked with collecting data and compiling economic reports return to their normal release schedule after the shutdown.

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Fed Governor Stephen Miran opposed a 50 basis point rate cut in December. (Michael Nagle/Bloomberg/Getty Images/Getty Images)

The minutes also show that policymakers are watching for signs of a “K-shaped” economy where there is fragmentation spending patterns of high and low income households.

“The majority of participants cited evidence of strong spending growth in high-income households, while low-income households have become more price-sensitive and are making changes in their spending patterns in response to the dramatic rise in prices of basic goods and services over the past few years,” the minutes said.

The Fed will hold its next monetary policy meeting on Jan. 27 and Jan. 28 and the market sees a high probability that it will hold prices unchanged.

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The probability of the Fed leaving its current range of 3.5% to 3.75% is currently 85%, up from 67.1% last month, according to the CME FedWatch tool.

Reuters contributed to this report.