Fed minutes could show how high the bar is for more rate cuts

Minutes from the Dec. 9-10 meeting, due out at 2 p.m. Eastern, cover the decision in favor of a quarter-point cut that lowered the target range for the federal-funds rate to 3.50%-3.75%. The record is likely to show a difficult decision as the committee weighed conflicting signals from inflation, the labor market, and President Donald Trump’s tariff policy.

Three policymakers dissented to the decision, the most since 2019. Two favored holding rates steady while one sought a cut of half a percentage point.

With just two trading days left in the year, investors will scour the minutes for clues about the Fed’s direction in 2026, particularly as four new regional bank presidents rotate into voting seats on the Federal Open Market Committee.

“We expect the minutes to the December meeting to note ongoing disagreement among FOMC participants about the appropriate policy path over the near term," economists at Goldman Sachs wrote in a note this week.

The Goldman analysts said they would be watching closely for discussion of Fed staff estimates suggesting payroll growth has been overstated. Powell said in December that staff analysis indicated job gains may have been inflated by roughly 60,000 a month, implying that underlying payroll growth could already be running slightly negative.

That debate among policymakers reflects broader uncertainty about the economic trajectory, even as officials express growing confidence that inflation pressures are slightly easing and that economic growth remains strong.

The December dot plot, showing individual officials’ forecasts for rates and various economic indicators, highlighted the divide. The median projection among all 19 Fed officials points to just one quarter-point rate cut in 2026, but individual forecasts vary widely. Seven officials expect no cuts next year, while four anticipate two quarter-point reductions.

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, adding a reference to “extent and timing" that wasn’t included following the FOMC’s October meeting.

Analysts will be looking closely for more detail on the specifics of how high that bar is.

Markets are currently pricing in a pause at the next meeting. Investors assign an 84% probability that the Fed holds rates steady in January and roughly even odds of another pause in March, according to the CME FedWatch Tool.

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