The Federal Reserve cut US interest rates last month despite deep divisions over the risks facing the world's largest economy, according to minutes from its most recent meeting, released on Wednesday.
The minutes from the Fed's December 9-10 meeting, where the benchmark target range was reduced to 3.50 to 3.75 per cent, showed that inflation and unemployment risks continued to weigh on the rate-setting committee's decision.
Fed minutes are typically backward-looking, generally being released three weeks after the meeting, but they offer fresh insights into the US central bank's thinking.
Three of the 12 voting members on the Fed voted against the most recent action: Fed governor Stephen Miran, who preferred a larger rate cut; and Chicago and Kansas City Fed presidents Austan Goolsbee and Jeffrey Schmid, who preferred to keep rates steady.
However, “a few” officials who voted in line with Fed Chair Jerome Powell to lower interest rates “indicated that the decision was finely balanced or that they could have supported keeping the target range unchanged", the minutes showed.
Driving the most recent discussion were risks to the Fed's two goals mandated by Congress: price stability and full employment.
Fed officials said tariffs imposed by US President Donald Trump have lifted inflation, but they do not expect those effects to be lasting. At the same time, downside risks to employment “had increased since the middle of 2025".
Data released since the last meeting showed inflation remains above the Fed's 2 per cent target, while the labour market remains in a low-hire and low-fire environment. Separate data also showed that the US economy outperformed expectations in the third quarter, growing at a 4.3 per cent annualised rate.
The minutes also showed officials lacked consensus on how aggressively they should cut rates in the future.
“In considering the outlook for monetary policy, participants expressed a range of views about the restrictiveness of the Committee's policy stance,” the minutes read.
“With respect to the extent and timing of additional adjustments to the target range for the federal funds rate, some participants suggested that, under their economic outlooks, it would likely be appropriate to keep the target range unchanged for some time after a lowering of the range at this meeting.”
The lack of official data during the extended government shutdown this year also weighed on how officials are to manage risk, with the lapse in funding preventing key reports being released. Additional delayed jobs and inflation reports are expected to come in before the normal release schedule resumes before the Fed's January 27-28 meeting.
In his post-meeting media conference this month, Mr Powell indicated that the central bank was on pause after its third rate cut in as many meetings.
“We think we're well positioned to wait and see how the economy performs,” he said at the time.
That is broadly in line with market expectations for future moves. Most traders anticipate the Fed will keep rates steady in its January and March meetings before reducing again in April, according to data from the CME Group.
Projections released by the Fed this month showed they expect to cut interest rates two more times next year to bring the federal funds rate down to 3.4 per cent before bringing rates down to 3.1 per cent in 2027.
“Most participants noted that a move towards a more neutral policy stance would help forestall the possibility of a major deterioration in labour market conditions,” the minutes showed.
Most central banks in the Gulf Co-operation Council would be expected to follow the Fed rate decisions because of their dollar pegs.
The make-up of the committee is also due to change next year with four regional Fed presidents rotating into voting roles. Mr Powell's term as Fed chair also expires in May, with Mr Trump expected to announce his nominee to replace him next month.
