Fed minutes from the October meeting showed Fed officials were divided on the need for an additional rate cut. The differences in views focused on two key risks: a slowing labor market and inflation that has yet to reach its 2% target.
While the Fed approved another quarter-point cut at its October meeting, the direction of policy heading into December remains uncertain.
Some officials said additional cuts might be appropriate if economic data remains weak, but a larger group expected rates to remain unchanged for the rest of the year.
The minutes also showed a mix of views among participants, with some supporting a cut, others opting to keep rates unchanged, and a few officials rejecting any additional cuts.
Markets had initially been almost certain of another cut at the December 9-10 meeting, but after Fed Chairman Jerome Powell’s more cautious remarks, that probability has dropped significantly.
FedWatch data now shows only about a one-in-three chance of a December cut, while expectations for a January cut are around 66%.
The minutes also highlighted concerns about a sluggish labor market and inflation that has yet to return sustainably to target.
This divergence of views has created three groups within the Fed: more dovish officials who are concerned about labor market weakness, hawkish ones who want to avoid premature cuts, and moderates who favor a cautious approach.
The October meeting was also hampered by a lack of data due to the 44-day government shutdown, which delayed key reports such as labor market and inflation.
The Fed described the situation as making decisions that were increasingly less convincing, adding to policy uncertainty.
In addition to interest rates, the Fed also agreed to stop reducing its balance sheet in December, after reducing more than $2.5 trillion since the quantitative tightening process began. The Fed's balance sheet is now around $6.6 trillion.
