Fed Officials Signal More Cuts Could Come in 2026: Minutes

The Marriner S. Eccles Federal Reserve Board Building, the main offices of the board of governors of the Federal Reserve system, on Dec. 9. (Andrew Harnik/Getty Images)

Key Points

• Federal Reserve officials cut interest rates by a quarter point to 3.50%-3.75% in December, the third cut this year.
• Minutes from the December meeting revealed some officials preferred pausing rate cuts, indicating internal disagreement.
• The minutes noted “most participants judged further rate cuts would likely be appropriate if inflation declined over time as expected.”

Federal Reserve officials were more divided over December’s rate cut than the tally of votes from the meeting suggested. The minutes showed that several policymakers who supported the move said they were close to backing a pause.

The Fed agreed to cut interest rates for a third and final time this year at its December meeting, but three policymakers dissented, the most since 2019. Two favored holding rates steady, while one pushed for a deeper cut.

Minutes from the meeting, released Tuesday, suggest the internal debate extended beyond those dissents. While most participants supported lowering the federal-funds rate, “a few of those who supported lowering the policy rate at this meeting indicated that the decision was finely balanced or that they could have supported keeping the target range unchanged,” they said.

The minutes also showed conditional support for further easing in 2026. “Most participants judged further rate cuts would likely be appropriate if inflation declined over time as expected,” they said.

The different opinions underpinning that view were reflected in the Fed’s December dot plot, which shows individual officials’ projections for interest rates and economic conditions. The median forecast among the 19 policymakers pointed to just one quarter-point cut in 2026.

But the range of views was vast. Seven officials projected no cuts next year, while four anticipated two quarter-point reductions. And several participants said it would “likely be appropriate to keep the target range unchanged for some time” after the December cut, underscoring divisions over the pace and extent of future easing.

Markets appeared largely unmoved by the release. Investors are pricing in a pause at the Fed’s next meeting, assigning an 85% probability that rates remain unchanged in January and roughly even odds of another pause in March, according to the CME FedWatch Tool. Those expectations were little changed after the minutes.

The minutes cover the Fed’s Dec. 9-10 meeting, when officials cut rates by a quarter point to a range of 3.50% to 3.75%. They show a committee weighing mixed signals from inflation and the labor market, alongside uncertainty surrounding President Donald Trump’s tariff policies.

The debate reflects broader uncertainty about the economic outlook, even as officials express growing confidence that inflation pressures are easing and growth remains solid.

Policymakers also adjusted their postmeeting statement to signal a higher bar for additional easing. “In considering the extent and timing of additional adjustments to the target range for the federal-funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” the statement said. The reference to “extent and timing” wasn’t included after the Fed’s October meeting.

With just one trading day left in the year, stocks were little changed. Markets are likely to focus instead on the four regional bank presidents rotating into voting seats on the Federal Open Market Committee in January and President Donald Trump’s expected announcement of the next Fed chair early next month.

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