US Fed minutes reveal deep divide, caution over more rate cuts

Most US Federal Reserve officials saw additional interest rate reductions as appropriate so long as inflation declines over time, though they remained deeply divided over when and how far to cut, a record of the central bank’s December meeting showed.

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Minutes of the Dec 9 to 10 Federal Open Market Committee (FOMC) gathering, released on Dec 30, pointed to the difficulty policymakers faced in their most recent decision, which modestly reinforced expectations the Fed will hold rates unchanged when they meet again in January.

"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,” the minutes said.

Following the minutes' release, the likelihood of a January cut based on federal funds futures contracts dropped slightly, to about 15 per cent.

The vote in favour of a cut from a finely divided committee showed chair Jerome Powell’s continued influence, according to Santander US Capital Markets chief US economist Stephen Stanley.

“The committee could easily have gone either way, and the fact that the FOMC eased is clear evidence that chairman Powell pushed for a cut,” he said in a note to clients.