FOMC minutes: Fed officials feared ‘entrenched' inflation- here's why 3 refused to cut

• Two dissenters (Goolsbee and Schmid) opposed any rate cut, citing inflation that had 'been above target for some time' with no progress toward the 2% goal over the past year
• Fed minutes revealed uncertainty about tariff impacts on prices, with officials reporting 'persistent input cost pressures unrelated to tariffs' from business contacts
• Committee signaled it's 'not on a preset course' for future cuts, meaning each decision will depend on fresh inflation data rather than following a mechanical schedule

Federal Reserve December Meeting Reveals Deep Division Over Inflation Concerns

The Federal Reserve's December FOMC minutes exposed significant internal conflict, with a rare 9-to-3 dissent on the latest rate cut decision. The division centered on fears that inflation could become "entrenched" above the Fed's 2% target.

Key Dissent Details:

• Two officials (Austan Goolsbee and Jeffrey Schmid) opposed any rate cut, arguing inflation remained stubbornly above target with no progress toward 2% over the past year
• One official (Stephen Miran) wanted a larger 50 basis point cut, prioritizing job market concerns
• The majority who voted for the cut still expressed serious inflation worries

Critical Inflation Concerns:

• Officials acknowledged that "progress toward the 2% inflation objective had stalled" in 2025
• Multiple members warned about "higher inflation becoming entrenched" - a scenario where elevated prices become locked into economic behavior
• The Fed fears this could "risk an increase in longer-run inflation expectations"

Tariff Impact and Cost Pressures:

• Core goods prices have risen noticeably, attributed largely to tariffs
• Business contacts reported "persistent input cost pressures unrelated to tariffs," suggesting structural inflation issues beyond trade policy
• Officials expressed significant uncertainty about when tariff effects would diminish

Market Implications:

The Fed signaled it's "not on a preset course," indicating future rate decisions will depend heavily on incoming inflation data rather than following a predetermined schedule. The deep division and inflation concerns suggest a more cautious approach to future rate cuts than markets may have anticipated. The acknowledgment that inflation-fighting efforts are "treading water" represents a significant shift in Fed messaging that could impact rate expectations for 2025.