by Calculated Risk on 12/30/2025 02:00:00 PM

From the Fed: Minutes of the Federal Open Market Committee, December 9–10, 2025. Excerpt:

In their consideration of monetary policy at this meeting, participants noted that inflation had moved up since earlier in the year and remained somewhat elevated. Participants further noted that available indicators suggested that economic activity had been expanding at a moderate pace. They observed that job gains had slowed this year and that the unemployment rate had edged up through September. Participants assessed that more recent indicators were consistent with these developments. In addition, they judged that downside risks to employment had risen in recent months.

Against this backdrop, most participants supported lowering the target range for the federal funds rate at this meeting, while some preferred to keep the target range unchanged. A few of those who supported lowering the policy rate at this meeting indicated that the decision was finely balanced or that they could have supported keeping the target range unchanged. Those who favored lowering the target range for the federal funds rate generally judged that such a decision was appropriate because downside risks to employment had increased in recent months and upside risks to inflation had diminished since earlier in 2025 or were little changed. Some of these participants emphasized that lowering the target range for the federal funds rate at this meeting was in line with a forward-looking approach to the pursuit of the Committee's dual-mandate objectives. These participants noted that reducing the policy rate at this meeting would be consistent with the projected decline in inflation over coming quarters while contributing to a strengthening of economic activity in 2026 that would help stabilize labor market conditions after this year's cooling. Those who preferred to keep the target range for the federal funds rate unchanged at this meeting expressed concern that progress toward the Committee's 2 percent inflation objective had stalled in 2025 or indicated that they needed to have more confidence that inflation was being brought down sustainably to the Committee's objective. These participants also noted that longer-term inflation expectations could rise should inflation not return to 2 percent in a timely manner. Some participants who favored or could have supported keeping the target range unchanged suggested that the arrival of a considerable amount of labor market and inflation data over the coming intermeeting period would be helpful in making judgments on whether a rate reduction was warranted. A few participants judged that lowering the federal funds rate target range at this meeting was not justified because data received over the intermeeting period did not suggest any significant further weakening in the labor market. One participant agreed with the need to move toward a more neutral monetary policy stance but preferred lowering the target range by 1/2 percentage point at this meeting.

In considering the outlook for monetary policy, participants expressed a range of views about the restrictiveness of the Committee's policy stance. Most participants judged that further downward adjustments to the target range for the federal funds rate would likely be appropriate if inflation declined over time as expected. With respect to the extent and timing of additional adjustments to the target range for the federal funds rate, some participants suggested that, under their economic outlooks, it would likely be appropriate to keep the target range unchanged for some time after a lowering of the range at this meeting. A few participants observed that such an approach would allow policymakers to assess the lagged effects on the labor market and economic activity of the Committee's recent moves toward a more neutral policy stance while also giving policymakers time to acquire more confidence about inflation returning to 2 percent. All participants agreed that monetary policy was not on a preset course and would be informed by a wide range of incoming data, the evolving economic outlook, and the balance of risks.

In discussing risk-management considerations that could bear on the outlook for monetary policy, participants generally judged that upside risks to inflation remained elevated and that downside risks to employment were elevated and had increased since the middle of 2025. Most participants noted that a move toward a more neutral policy stance would help forestall the possibility of a major deterioration in labor market conditions. Many of these participants also judged that the available evidence pointed to a reduced probability that tariffs would lead to persistent inflation pressures. These participants observed that it was appropriate for the Committee to ease its policy stance in response to downside risks to employment, thereby helping to bring the risks to achieving the dual-mandate goals into better balance, and suggested that a move toward a more neutral policy stance at this meeting would leave policymakers well positioned to determine the extent and timing of additional adjustments to the policy rate, with these judgments being based on the incoming data, the evolving outlook, and the balance of risks. By contrast, several participants pointed to the risk of higher inflation becoming entrenched and suggested that lowering the policy rate further in the context of elevated inflation readings could be misinterpreted as implying diminished policymaker commitment to the 2 percent inflation objective. Participants judged that a careful balancing of risks was required and agreed on the importance of well-anchored longer-term inflation expectations in achieving the Committee's dual-mandate objectives.
emphasis added