December interest rate cut was a close call for some Fed officials, minutes show

WASHINGTON (AP) — Some Federal Reserve officials who supported cutting a key interest rate earlier this month could have instead backed keeping the rate unchanged, minutes released Tuesday show, underscoring the divisions and uncertainty permeating the central bank.

At their December 9-10 meeting Fed officials agreed to cut their key interest rate by a quarter point for the third time this year, to about 3.6%, the lowest in nearly three years. Yet the move was approved by a 9-3 vote, an unusual level of dissent for a committee that typically works by consensus. Two Fed officials supported keeping the rate unchanged, while one wanted a larger, half-point reduction.

The minutes underscored the deep split on the 19-member policymaking committee over what constitutes the biggest threat to the economy: weak hiring or stubbornly-elevated inflation. If a sluggish job market is the biggest threat, then the Fed would typically cut rates more. But if still-high inflation is the bigger problem, then the Fed would keep rates elevated, or even raise them. Just 12 of the 19 members vote on rate decisions, though all participate in discussions.

The minutes showed that even some Fed officials who supported the rate cut did so with reservations. Some Fed officials wanted to wait for more economic data before making any further moves, the minutes said. Key economic data on jobs, inflation, and growth were delayed by the six-week government shutdown, leaving Fed officials with only outdated information at their meeting earlier this month.

The minutes don't identify specific officials. But how they vote is public, and two policymakers dissented in favor of keeping rates unchanged: Jeffrey Schmid, the president of the Federal Reserve Bank of Kansas City, and Austan Goolsbee, president of the Chicago Fed.

The third dissent was from Fed governor Stephen Miran, who was appointed by President Donald Trump in September and favored a half-point cut.

When the Fed reduces its key rate, over time it can lower borrowing costs for homes, cars, and credit cards, though market forces also affect those rates.

At its December meeting, the Fed also released quarterly economic projections, which also showed the extent of the divisions on the Fed committee. Seven officials projected no cuts in 2026, while eight forecast two or more reductions. Four supported just one cut.

A weaker job market would likely spur the Fed to reduce borrowing costs more quickly. Two weeks ago, the government reported that employers had cut about 40,000 jobs in October and November, while the unemployment rate rose to 4.6%, a four-year high.

Inflation, meanwhile, remains above the Fed’s 2% target, complicating the central bank’s next moves. In November, annual inflation cooled to 2.7%, down from 3% in September, but last month's data were likely distorted by the shutdown, economists said, which forced the government to estimate many price changes rather than measuring them directly.

Powell said after the Dec. 10 meeting that the central bank cut rates out of concern that the job market is even weaker than it appears. While government data shows that the economy added just 40,000 jobs a month from April through September, Powell said that figure could be revised lower by as much as 60,000, which would mean employers actually shed an average of 20,000 jobs a month during that period.

“It’s a labor market that seems to have significant downside risks,” Powell told reporters. “People care about that. That’s their jobs.”