The voting at the Fed’s December meeting was highly divisive, with a 9-3 vote in favor of the 25-bp rate cut. This marked the most dissents at an FOMC meeting since 2019. The Fed is faced with a major problem – the labor market is showing wide cracks while inflation remains stubbornly high and above the Fed’s inflation target of 2%. In other words, FOMC members see downside risks to employment and upside risks to inflation. This has made monetary policy a tricky issue – a weak labor market supports further rate cuts, but that could push inflation higher. Understandably, these two dynamics have divided Fed policymakers.
FOMC Vote was Close
The minutes noted that the vote to lower rates may have been an even closer call than the 9-3 vote indicated, as some members who supported the cut indicated that “the decision was finely balanced, or they could have supported” keeping rates unchanged. Most members viewed further rate cuts to be “appropriate if inflation declines over time as expected.” This means that upcoming inflation reports will be critical factors as to whether further cuts are coming.
Aside from the inflation-employment issue, the Fed faces another problem as the economic reports are trailing due to the government shutdown in October. This means that the numbers the Fed and the markets are working with are not the most recent data, making it difficult to accurately access the state of the economy.
As a result, the markets expect the Fed to stay put over the next several meetings until the data is up-to-date, with another cut unlikely before March 2026. That assessment could change if there are any surprises on the inflation or employment fronts.
US Dollar Slightly Higher, Stock Market Dips
The US dollar showed limited movement against the majors in response to the Federal Reserve minutes. Early Wednesday, the GBP/USD currency pair was down 0.25%, trading at 1.3430, while EUR/USD was down 0.23%, trading at 1.1720.
The stock markets didn’t show much reaction to the Fed minutes on Wednesday, posting small losses only.
The Nasdaq 100 Index dropped 55 points (0.24%) and closed at 23,419.
The S&P 500 Index fell 9 points (0.314%) and closed at 6896 points.
We hope you enjoyed reading our analysis of the FOMC meeting minutes. If you’d like to trade with one of the best Forex brokers in the world, check out our list of candidates.
Kenny started his career in forex working in the sales and marketing department at a major forex broker and has worked as a market analyst for 12 years. With a legal editing background, Kenny has combined his writing skills and finance expertise to produce top-quality articles. Kenny covers a wide range of topics, including global stock markets, commodities and currencies, with focus on fundamental and macro-economic analysis. Kenny’s articles have been carried by OANDA, Investing.com, Seeking Alpha and FXStreet. Kenny holds a Bachelor of Law from Ogoode Hall Law School in Toronto, Canada.
