Divided US Fed set for contentious interest rate meeting

While the US Federal Reserve's final interest rate meeting in 2025 could see an unusual amount of division, financial markets view a third straight interest rate cut as nearly certain.

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When the Fed last met in October, chair Jerome Powell asserted that another rate cut in December was “not a foregone conclusion”, pointing to “strongly differing views” within the central bank.

Minutes from the Fed’s most recent meeting showed many officials expect a further uptick in underlying goods inflation as President Donald Trump’s tariffs bite.

But recent comments from leading Fed officials also reflected support for cutting again because of a weakening labour market, even though inflation is still above the Fed’s 2 per cent target.

This week’s outcome in the “deeply divided” Fed is “too close to call”, UniCredit said, while also acknowledging that favourable comments from New York Fed bank chief John Williams towards a cut are a notable “intervention”.

“As one of the most senior members of the (Fed committee), it seems unlikely Williams would have said this without Powell’s prior approval,” UniCredit said.

Policymakers generally hold rates at a higher level to tamp down price increases, but a rapidly deteriorating jobs market could nudge them to slash rates further to boost the economy.