FX.co ★ Fed Likely to Reduce Rates Next Year: FOMC Minutes

The minutes from the Federal Reserve's December meeting revealed that most members of the Federal Open Market Committee (FOMC) believe that rate cuts may be appropriate next year if inflation gradually decreases. However, there was a division among policymakers regarding the potential risks of persistent inflation versus rising unemployment. Some FOMC members expressed concern that entrenched inflation might necessitate higher borrowing costs, whereas others advocated for more significant rate cuts to address signs of a weakening labor market. At the December meeting, the federal funds rate was reduced by 25 basis points to a range of 3.5% to 3.75%, aligning with market expectations and marking the third rate cut of the year. The decision was not unanimous, as two members dissented, preferring to maintain the existing rate, while new FOMC Governor Miran supported a 50 basis points cut. Furthermore, the Summary of Economic Projections (SEP) presented during the meeting indicated a more optimistic outlook for growth in the upcoming year, reflecting a milder-than-anticipated initial effect from tariffs.