The Fed minutes for October show that Fed officials are divided on the need for additional interest rate cuts. The differing views focus on two main risks: a slowing labor market and inflation that remains difficult to bring down to the 2% target.
Although the Fed approved another quarter-point cut at the October meeting, the policy outlook heading into December remains uncertain.
Some officials believe additional cuts may be appropriate if economic data remain weak, but a larger group expects rates to be kept unchanged for the rest of the year.
The minutes also reveal a mix of opinions among participants, with some supporting cuts, others preferring to maintain rates, and several officials opposing any further reductions.
The market initially was almost certain to expect another cut at the December 9-10 meeting, but following a more cautious statement from Fed Chair Jerome Powell, that probability has dropped significantly.
FedWatch data now shows only about a one-third chance of a December cut, while expectations for a cut in January stand around 66%.
The minutes also highlight concerns about labor market softness and inflation that has yet to sustainably return to target.
This divergence of views creates three groups within the Fed: more dovish officials worried about labor market weakness, hawkish members aiming to avoid premature cuts, and a moderate group prioritizing a cautious approach.
The October meeting was also affected by a lack of data due to the 44-day government shutdown, causing delays in key reports such as labor market and inflation data.
The Fed described this situation as making decision-making less certain, thereby increasing policy uncertainty.
Besides interest rates, the Fed also agreed to stop the balance sheet reduction process in December, after having reduced more than $2.5 trillion since quantitative tightening began. The Fed’s balance sheet now stands at around $6.6 trillion.
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