Fed Minutes Reveal Razor-Thin Divide Over December Rate Cut

The Split That Moved Markets

Minutes from the Federal Reserve’s December meeting, released Wednesday, show policymakers were almost evenly divided on whether to cut interest rates, a revelation that sent traders scrambling to recalibrate bets for 2024.

Inside the 7-to-5 Vote

According to the record, seven officials favored the quarter-point reduction that ultimately took the fed-funds target to 5.25 %–5.50 %, while five preferred to hold steady and one wanted a half-point cut. The narrow margin underscores the tension between cooling inflation and still-hot labor costs.

“Several participants emphasized that policy was already at a restrictive stance,” the minutes read, “and further easing could complicate the committee’s inflation objective.”

What the Hawks Feared

• Stubbornly strong wage growth
• Re-ignited demand in housing and equities
• Dollar weakness feeding import-price pressures

What the Doves Cited

• Softening consumer spending data
• Manufacturing surveys sliding into contraction
• Global central-bank easing already priced into the dollar

Market Ripple Effect

Within minutes of the release, the S&P 500 swung from a 0.3 % loss to a 0.7 % gain as investors interpreted the lack of consensus as a signal the Fed could pause—or even reverse—cuts if inflation perks up. Two-year Treasury yields jumped 6 basis points to 4.32 %, while the dollar index climbed to a three-week high.

Looking Ahead

Fed watchers now see a 60 % probability of another quarter-point cut by March, down from 80 % last week. Friday’s non-farm payrolls report, due at 8:30 a.m. ET, could tip the scales in either direction.