Further rate cuts in question as Fed policymakers deeply divided over December cut, minutes show

• Six officials released economic projections opposing a cut, while market expectations now show 85% probability of rates remaining unchanged at the January 27-28 meeting
• Policymakers are monitoring signs of a 'K-shaped' recovery with diverging economic conditions between high-income households showing stronger spending and low-income households becoming increasingly price sensitive
• Fed officials indicated they await key economic data including December inflation and jobs reports on January 9 and 13 following November's 43-day government shutdown that delayed reports

Fed Minutes Reveal Deep Divisions Over December Rate Cut

Federal Reserve policymakers showed significant disagreement over December's 25 basis point rate cut, which lowered the federal funds rate to 3.5%-3.75%, according to newly released meeting minutes. The decision saw three dissents: two members (Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid) favored keeping rates unchanged, while Fed Governor Stephen Miran pushed for a larger 50 basis point cut.

The division reflects conflicting economic pressures. While some officials cited a slowing labor market as justification for continued easing, others expressed concern that progress toward the Fed's 2% inflation target had stalled. Six officials' economic projections suggested opposition to any cut.

The minutes revealed policymakers are monitoring signs of a "K-shaped" economic recovery, with diverging fortunes between income groups. High-income households show stronger spending growth, while lower-income consumers have become increasingly price-sensitive due to cumulative price increases in basic goods and services.

Fed Chair Jerome Powell indicated the policy rate is now closer to neutral, suggesting future cuts may be paused pending fresh economic data. The 43-day government shutdown that ended in November had delayed key economic reports, with December inflation and jobs data scheduled for release on January 9 and 13, respectively.

Market expectations have shifted significantly, with the probability of rates remaining unchanged at the January 27-28 meeting rising to 85% from 67.1% a month ago, according to CME FedWatch data. The minutes suggest several policymakers believe rates should remain steady "for some time" while awaiting additional labor market and inflation data.