Fed Leans Toward December Rate Pause, Minutes Show

Federal Reserve Chair Jerome Powell speaks at a news conference following a meeting of the Federal Open Market Committee on Oct. 29. (Alex Wong/Getty Images)

Key Points

• Federal Reserve officials lowered interest rates by a quarter percentage point to between 3.75% and 4.00% at their October meeting.
• Many officials suggested keeping interest rates steady for the rest of the year, while several considered a further cut in December.
• The committee is weighing conflicting signals from stubborn inflation, which is above 2%, and a weakening labor market.

Federal Reserve officials agreed last month that weakening labor-market data justified October’s interest-rate cut. What they couldn’t agree on was what comes next.

Minutes from the Fed’s Oct. 28-29 meeting, released Wednesday, show a committee divided over whether to continue easing or to hold rates steady through year-end. Officials lowered the federal-funds rate to a 3.75% to 4.00% range at that meeting, the second cut of 2025. They spent much of the discussion debating how to weigh persistent inflation against mounting signs of labor-market strain.

Many participants said that, under their forecasts, it would likely be appropriate to keep rates unchanged for the rest of the year. In Fed terminology, “many” typically signals a slight majority—though not all of those participants are voters. Several others argued that another reduction in December “could well be appropriate” if the economy evolved as expected.

All participants stressed that policy was “not on a preset course” and would depend on incoming data, the economic outlook and the balance of risks. The divide reflects two competing concerns: slowing job growth and income expectations on one side, and inflation that remains well above the Fed’s 2% goal on the other. Policymakers noted that consumer prices are still elevated and have held above target for nearly five years. Several warned that lowering rates too aggressively could send the wrong signal about the central bank’s commitment to restoring price stability.

The minutes also highlighted a growing unease about frothy markets. Several officials flagged the risk of a “disorderly fall” in equity prices in the event of an abrupt reassessment of artificial-intelligence-related technology.

Analysts read the meeting notes as evidence of a modest hawkish tilt within the central bank. The minutes “provided unmistakable evidence of a split between hawks and doves,” wrote Joseph Brusuelas of RSM, who added that concerns about entrenched inflation appeared to carry slightly more weight.

With the Labor Department delaying November payroll reports until Dec. 16 because of the record-long government shutdown, he said policymakers will head into their final meeting of the year with only a partial picture of the economy.

“Under such conditions the Fed will not and should not cut rates,” Brusuelas wrote.

Investors have been dialing back expectations accordingly. Markets now assign roughly a one-in-three chance of a December cut, down from about 50% a day earlier, according to CME FedWatch.

The internal tension reflected in the minutes echoes recent public commentary. Vice Chair for Supervision Michelle Bowman and Governors Stephen Miran and Christopher Waller have suggested they remain comfortable with additional easing. Regional presidents Alberto Musalem of St. Louis, Jeffrey Schmid of Kansas City, and Susan Collins of Boston have signaled caution and a likely rate pause at the Dec. 9-10 meeting. In September’s projections, officials were nearly evenly split: 10 penciled in two or more cuts this year, while nine anticipated one or fewer.

Fed Chair Jerome Powell acknowledged that divergence at his October news conference.

“There were strongly differing views about how to proceed in December,” he said. “A further reduction in the policy rate is not a foregone conclusion. Far from it.”

While the economic backdrop has shifted slightly since the October meeting, the minutes still offer a rare glimpse into how policymakers were weighing risks as they approached the final stretch of the year, and how far they were from consensus.

Write to Nicole Goodkind at nicole.goodkind@barrons.com