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US rate-setters clashed at their meeting this month over whether or not to prioritise fighting inflation over a cooling labour market, minutes of one of the most divided monetary policy votes in recent decades highlighted.
While many Federal Reserve policymakers said the latest data indicated President Donald Trump’s trade war would not trigger persistent price pressures, several rate-setters “pointed to the risk of higher inflation becoming entrenched”, the minutes of the December 9-10 meeting, published on Tuesday, said.
Several rate-setters voiced concerns that cutting interest rates could be “misinterpreted” as signalling the central bank was no longer committed to keeping price pressures under control, the minutes added.
The minutes chronicle a meeting when three votes were against the decision to cut US borrowing costs by a quarter point to a range of 3.5 per cent to 3.75 per cent — dissent on a scale not seen since 2019. The last time there were more dissents was in the early 1990s.
Austan Goolsbee, head of the Chicago Fed, joined his counterpart at the Kansas City Fed Jeffrey Schmid in voting to keep borrowing costs on hold. Fed governor Stephen Miran, an ally of Trump, reiterated his call for a deeper 0.5 percentage-point cut.
So-called dot-plots, which show US rate-setters’ projections for borrowing costs and the economy, indicated another four regional Fed presidents would have supported holding interest rates steady in an attempt to cool persistently elevated consumer price growth.
The minutes also reveal that among the nine rate-setters who backed the cut, “a few” said “the decision was finely balanced or that they could have supported keeping the target range unchanged”.
At 2.8 per cent, personal consumption expenditures inflation for September remains well above the 2 per cent level the Fed targets.
A separate report on consumer prices for October suggested inflationary pressure could be cooling. However, many economists say that fall was partly down to flaws in data collection caused by the recent government shutdown and methodologies the Bureau of Labor Statistics used to produce the report.
Meanwhile, figures for third-quarter growth showed the US economy expanded by a stronger than anticipated 4.3 per cent annualised rate.
The dissents against the December cut — the third quarter-point reduction in as many votes — highlight the scale of the challenge facing Fed chair Jay Powell’s successor when he relinquishes the role in May 2026.
Trump on Monday said he would likely name his pick to succeed Powell as chair “sometime” in January.
National Economic Council director and close ally Kevin Hassett is seen as favourite for the role.
Former Fed governor Kevin Warsh and current governor Christopher Waller, who was first among the central bank’s leadership to call for rate cuts, have also been interviewed for the role.
Trump has made a willingness to aggressively cut borrowing costs a prerequisite for winning the nomination, with the president insisting interest rates should be as low as 1 per cent to strengthen the world’s biggest economy.
But Powell signalled after the December vote that the bar to more cuts was high.
Many of the regional Fed presidents who are most concerned about inflation will hold voting rights in 2026 — including Cleveland’s Beth Hammack, the Dallas Fed’s Lorie Logan and the head of the Minneapolis Fed Neel Kashkari.
The minutes also acknowledged policymakers were concerned about the stigma associated with financial companies tapping a key Fed tool that is meant to reduce pressures in money markets.
The standing repo facility, or SRF, was set up in 2021 to keep short-term funding costs close to official interest rates.
But Roberto Perli, a senior New York Fed official, told the Fed’s rate-setting board that on certain days, a “large” amount of borrowing was done at interest rates in excess of what the facility charges.
The minutes blamed “misperceptions about the intended purpose” of the SRF for the reluctance to use it, with market contacts calling for the operations to be centrally cleared and the $500bn-a-day limit on usage to be scrapped.
Perli also advised the Fed to restart bond purchases as soon as this month in an attempt to get ahead of shortages of cash anticipated during the early months of 2026 — a move that rate-setters approved.
