Divisions emerge within the Federal Reserve
Several officials at the U.S. Federal Reserve expressed reluctance to support additional interest rate cuts in 2026, according to minutes from the central bank’s most recent policy meeting released on Tuesday. The discussions highlight growing divisions within the Fed over how aggressively to ease monetary policy as economic conditions evolve.
Earlier this month, the Fed lowered interest rates for the third consecutive meeting. However, the decision drew the highest level of dissent among policymakers since 2019. Two regional Fed presidents favored leaving rates unchanged, while Governor Stephen Miran, appointed earlier this year, argued for a larger reduction.
Inflation concerns and a wait-and-see approach
Fed Chair Jerome Powell signaled after the decision that additional rate cuts were not guaranteed. The meeting minutes reinforced that message, noting that some participants believed it would be appropriate to keep rates steady for a period following the latest cut in order to assess how earlier easing measures affect the economy and labor market.
Officials expressing caution said they were concerned that progress toward the Fed’s 2% inflation target may have stalled during 2025. Some emphasized the need for greater confidence that inflation is being brought down in a sustainable manner before endorsing further reductions in borrowing costs.
Supporters of easing remain data-dependent
At the same time, most policymakers indicated that additional rate cuts could still be justified if inflation continues to decline as expected. Recent data released after delays caused by a government shutdown showed inflation easing in November for the first time since the spring, offering some support to the dovish camp.
Nevertheless, concerns linger around potential price pressures linked to tariffs, which some officials believe could complicate the inflation outlook in the coming year.
Labor market, productivity and AI in focus
Despite strong economic growth in the third quarter, Fed officials noted that the labor market appears to be softening. Several participants pointed to technological progress, particularly the increasing use of artificial intelligence, as a factor that could boost productivity without fueling inflation, while also potentially dampening job creation.
Determining whether current economic trends reflect structural changes driven by technology or more temporary cyclical dynamics will be a central challenge for policymakers in the months ahead.
Leadership uncertainty adds another layer
The debate over rate cuts is unfolding as political attention turns to the future leadership of the Federal Reserve. President Donald Trump has said he plans to announce his nominee to lead the Fed next month, with Chair Jerome Powell’s term set to expire in May. Market speculation continues around several potential candidates, adding another source of uncertainty to the policy outlook.
