FOMC Minutes Expose Deepening Rift Over Rate Cuts, Inflation Risks
October meeting recap reveals widening disagreements on how restrictive policy truly is, how soon to ease, and whether inflation progress has stalled
The Federal Open Market Committee’s (FOMC) Oct. 28–29 minutes show the most pronounced internal division in years, with policymakers sharply split over whether monetary policy is too tight, not tight enough, or appropriately restrictive as the Fed shifts toward a more “neutral” stance.
Growing division over the October rate cut
The committee voted to lower the federal funds rate by 25 basis points to a 3.75%–4% target range, but the minutes detail a highly fractured debate.
- “Many” favored the cut.
- Some said they supported the reduction but could have also backed holding rates steady.
- Several opposed cutting at all, citing stalled progress on inflation and concern that expectations could drift upward.
Supporters of the cut pointed to rising downside risks to employment, noting softer labor demand and diminishing upside inflation risks relative to earlier in the year. Those arguing for a pause stressed that inflation had not moved closer to 2% and that confidence in the disinflation trend was lacking.
The minutes also confirm the outlier positions: Gov. Stephen Miran favored a 50bp cut, while Kansas City Fed President Jeffrey Schmid wanted no cut at all.
Mixed views on halting balance sheet runoff
Nearly all participants supported or could support ending the balance sheet runoff on Dec. 1 after concluding that reserve balances had returned to “ample” levels. One dissenter — likely Miran — voted against the rate decision but favored an immediate end to runoff.
The committee also agreed that reinvesting agency MBS principal into Treasury bills would help realign the portfolio with Treasury’s evolving issuance structure.
A widening rift on the policy outlook
The most striking language comes in the section on forward guidance: participants expressed “strongly differing views” on what should happen at the December FOMC meeting.
- Most participants expect the Fed will need “further downward adjustments” over time as policy returns to neutral—though several said they do not currently view another December cut as appropriate.
- Several others argued that another reduction could be warranted in December if the economy evolves as expected.
- Many participants believe the target range should remain unchanged for the rest of the year.
The minutes underscore that disagreement is driven by conflicting interpretations of how restrictive current policy is. Some see the stance as even more restrictive after the October cut; others believe strong activity data and supportive financial conditions show it may not be restrictive enough.
Inflation, labor market, and tariff uncertainty shape the debate
Officials broadly agreed that upside inflation risks remain elevated, while downside employment risks have risen since mid-year.
- Some noted inflation would be near target excluding tariff effects.
- Many countered that inflation had been stuck above 2% and showed little sign of timely improvement.
- Many expect core goods inflation to pick up in coming quarters due to tariff pass-through.
- Several districts reported businesses delaying price increases until tariff policy stabilizes.
Labor market concerns were intensifying: officials expect conditions to soften further, with hiring reluctance rising and turnover declining. A sharper drop in labor demand could push unemployment higher “quickly,” the minutes warn.
Staff outlook: inflation pressures linger, uncertainty remains high
Fed staff estimated PCE inflation at 2.8% in September, a 0.5-percentage-point rise from a year earlier, with tariffs expected to lift inflation into 2025–26 before resuming its prior disinflation trend.
The staff flagged elevated uncertainty tied to cooling labor markets, still-high inflation, policy changes, and data gaps caused by the government shutdown.
Bottom line: Fed enters December meeting deeply split
The October minutes portray a committee torn between two competing risks:
- cutting too soon and risking entrenched inflation,
- or staying too tight and triggering a sharper labor market deterioration.
Chair Jerome Powell’s post-meeting warning that a December cut was “far from” guaranteed reflects the degree of internal disagreement. While most officials expect some additional easing over time, the timing, pace, and even the necessity of near-term cuts remain sharply contested.
Upshot: The data arriving before the Dec. 9–10 meeting will matter — but it would likely take dramatically clearer economic signals to bridge the divide exposed in the October minutes.
