US Fed Minutes Reveal Deep Divide, Caution Over More Rate Cuts In 2026

Summary:

Most 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.

Minutes of the Dec 9-10 Federal Open Market Committee 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 Stephen Stanley, chief US economist at Santander US Capital Markets.

"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," Mr Stanley said in a note to clients.

Officials earlier in December voted 9-3 to lower their benchmark interest rate by a quarter percentage point for the third straight time, to a range of 3.5 per cent to 3.75 per cent. Governor Stephen Miran voted against the action in favor of a half-point cut, while Chicago Fed president Austan Goolsbee and Kansas City's Jeff Schmid dissented in favour of keeping rates unchanged.

Rate projections for 2025 pointed to an even deeper split among the larger group of 19 policymakers. Six officials signalled their opposition to the rate reduction by recommending the benchmark rate should stand at 3.75 per cent to 4 per cent at the end of this year – where it stood before the December meeting.

In line with those projections, the minutes showed that some officials believed "it would likely be appropriate to keep the target range unchanged for some time after a lowering of the range at this meeting."

While the median rate projection from officials released after the meeting pointed to one quarter-point cut in 2026, individual projections ranged widely. Investors expect at least two reductions in 2026.

Deep division

The minutes continued to point to considerable differences among policymakers over whether inflation or unemployment posed the greater peril to the US economy.

"Most participants noted that a move toward a more neutral policy stance would help forestall the possibility of a major deterioration in labor market conditions," the minutes noted.

At the same time, it continued, "several participants pointed to the risk of higher inflation becoming entrenched and suggested that lowering the policy rate further in the context of elevated inflation readings could be misinterpreted as implying diminished policymaker commitment to the 2 per cent inflation objective."

Speaking to reporters following the meeting, Mr Powell suggested the Fed had lowered rates enough to guard against a more serious deterioration in the labour market while leaving rates high enough to continue weighing on inflation.

Officials lacked the typical level of economic data due to the government shutdown that lasted for all of October and nearly half of November. Policymakers noted, however, that new data could help them in coming weeks.

"Some participants who favored or could have supported keeping the target range unchanged suggested that the arrival of a considerable amount of labor market and inflation data over the coming intermeeting period would be helpful in making judgments on whether a rate reduction was warranted," the minutes said.

Since the meeting, fresh data has done little to resolve divisions at the Fed. In November unemployment rose to 4.6 per cent, its highest level since 2021, and consumer prices increased by less than expected. Both releases bolstered the case for those supporting lower rates.

But the economy grew in the third quarter at an annualised rate of 4.3 per cent, the fastest pace in two years, likely fanning worries over inflation for those who opposed the December cut. BLOOMBERG

Source: Straitstimes

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Daniel Carter

Economic

Growth in consumer prices slowed to 2.3% in December from a year earlier, decelerating from a 2.4% pace in November, the Ministry of Data and Statistics said Wednesday. The result was in line with the median forecast of 2.3% in a Bloomberg survey of economists.

Core inflation, which excludes volatile food and energy items, advanced at a 2% pace, matching the 2% clip in November, the data showed. Both headline and core gauges continue to hover around the Bank of Korea's 2% target.

The data point to easing price pressures, but the figures are not likely to prompt the BOK to resume its monetary easing cycle when authorities next set policy on Jan. 15. A persistent rally in the property market has raised concerns over growing mortgage debt levels that could lead to financial imbalances, making the central bank reluctant to add stimulus.

Also, living costs may continue to rise. Authorities warned earlier this month that strength in food prices could help push inflation above the projected path next year even as underlying price pressure remains largely contained.

In December, food and non-alcoholic beverage prices rose 3.6% from a year earlier, easing from November, while housing and utilities costs increased 1.3%. Prices for food and lodging gained 3%, and transportation costs climbed 3.2%.

The slowdown was led by easing costs for telecommunication, alcoholic beverages and tobacco products. Policymakers remain wary of upside risks from the weak Korean won, which could feed through to prices for imported goods in a country heavily reliant on overseas supplies of food and energy.

Still, apartment prices in Seoul extended their gains for a 47th straight week as of Dec. 22, according to the Korea Real Estate Board, reinforcing the BOK's concern that rate cuts could fuel financial imbalances.

The BOK held its benchmark rate steady at 2.5% in late November while also slightly increasing its growth and inflation outlooks. Authorities also removed a reference in the statement to maintaining a rate-cut stance, prompting some economists to speculate that the easing cycle might have run its course.

Officials are keeping their options open. The bank said last week that it will keep the door open to further cuts next year, while also increasing vigilance over financial stability risks from foreign-exchange and housing markets.

Inflation is expected to remain anchored around the target, but the BOK warned in a statement for monetary policy in 2026 that upside pressures could prove stronger than anticipated, citing weakness in the won and a recovery in local consumption.

Buoyant stock prices and the persistent property market rally have supported consumer sentiment for most of the year, with a gauge of confidence staying well above the neutral level for an eighth straight month in December.

Source: Bloomberg Europe

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Central Bank

Economic

Fed policymakers decided at the Dec. 9-10 meeting to begin Treasury bill purchases after deeming that reserves in the financial system had dropped to levels considered as ample as indicated by rising short-term funding costs. While bank reserve levels vary over time, cash needs tend to increase during month-end and quarter-end periods when tax and other settlement payments are due.

"While the estimated size of expected purchases varied considerably across respondents, on average, respondents anticipated net purchases of about $220 billion over the first 12 months of purchases," minutes of the Federal Open Market Committee's Dec. 9-10 meeting published Tuesday said.

The Fed said it would start buying about $40 billion of T-bills a month, before paring its purchases. It has so far purchased about $38 billion of bills this month and will conduct two more operations in January.

Fed policymakers have stressed that these purchases are a tool solely to manage reserves and are distinct from the central bank's broader monetary policy or efforts to stimulate the economy.

The decision came after some participants at the meeting observed that money market rates were rising faster relative to the Fed's administered rates than they did during the 2017-2019 balance-sheet unwinding period, the minutes indicated.

The Fed stopped shrinking its holdings earlier this month, a process known as quantitative tightening, as signs of stress in the $12.6 trillion market for repurchase agreements were building up. A ramp up in Treasury bill issuance since the summer, combined with QT, has been siphoning cash away from money markets, draining the central bank's main liquidity facility and pushing short-term rates higher.

The concern is that a lack of adequate liquidity would disrupt a vital part of the financial markets' plumbing, undermining the Fed's ability to control its rate-setting policy and, at the extreme, force position unwinds that could spill into the broader Treasury market, the global benchmark for borrowing costs.

The December meeting minutes also included a discussion among Fed officials on how best to target an appropriate level of bank reserves in the system. Some participants highlighted the appeal of focusing on the level of money-market rates in relation to the interest paid on reserve balances, rather than a particular level of reserves, given the potential for shifts in demand.

A major benchmark tied to the market for overnight funding, the Secured Overnight Financing Rate, fixed at 3.77% on Dec. 29 as of Federal Reserve Bank of New York data published Tuesday. That's 12 basis points above the interest offered on the Fed's reserve balances.

"A couple of participants expressed the view that a definition of 'ample reserves' that resulted in a larger supply of reserves than necessary to implement the Committee's framework could lead to excessive risk-taking by leveraged investors," the minutes said.

Some Fed officials also raised the idea that standing repo operations, which act as a liquidity backstop, could "play a more active role" in rate control and that the tool could allow for a smaller balance sheet on average. Others, however, said they preferred to rely more on reserve management purchases instead.

While usage of the Fed's standing repo facility increased in recent months, market participants have pushed back against officials urging them to use the facility more, in part due to the stigma of borrowing directly from the central bank.

Source: Bloomberg Europe

To stay updated on all economic events of today, please check out our Economic calendar

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Manuel

Commodity

Oil steadied as traders weighed geopolitical tensions from Venezuela to Russia and Yemen against concerns about a global glut.

West Texas Intermediate futures were little changed to settle near $58 a barrel in quiet trading ahead of New Year’s. The United Arab Emirates said it will withdraw forces from Yemen following a flare up in tensions with oil-rich ally Saudi Arabia over military operations in the conflict-hit country. At the same time, President Donald Trump’s push to for a peace plan in Ukraine faces fresh obstacles after Russia’s Vladimir Putin said he would revise his negotiating position. Moscow’s oil has come under tighter international sanctions in an effort to force an end to the war.

Despite those risks, OPEC+ members meeting this weekend are expected to stick with plans to pause further supply hikes amid growing evidence of a global surplus, according to three delegates.

Crude remains on course for a steep annual decline on concern production will eclipse demand after OPEC+ ramped up output in a bid to recapture market share. Among signs of abundant supplies, the amount of oil held on idle tankers has been steadily rising, Vortexa Ltd. data show. Oil Steadies as Geopolitical Risks Counter Oversupply Outlook_1

Oil Steadies as Geopolitical Risks Counter Oversupply Outlook_1

The supply outlook has been further complicated as the Trump administration presses on with a partial US blockade that’s crimped exports from Venezuela. The South American country has started to shut wells and see local storage tanks to fill, in a reality check for President Nicolas Maduro, who throughout the blockade has attempted to maintain exports that are at the core of the economy.

In the US, crude stockpiles at the key Cushing, Oklahoma, hub saw the biggest weekly build since late October in the period to Dec. 19, according to government figures. On a nationwide basis, holdings of gasoline and distillates also rose.

Source: Bloomberg

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Manuel

Political

A federal judge on Tuesday rejected a claim by President Donald Trump's administration that it is legally barred from securing funding for the U.S. Consumer Financial Protection Bureau, noting that a court order already bars the administration from shutting the agency down.

The ruling from U.S. District Judge Amy Berman Jackson came as the CFPB faced the imminent exhaustion of funds. The Trump administration has denied the CFPB additional cash to meet expenses since taking control of the agency in February but it has been repeatedly blocked in the courts from firing workers en masse .

CFPB representatives did not immediately respond to a request for comment.

Officials say cash on hand could be exhausted in early 2026 and the CFPB announced last month that an administration legal opinion held that, under the agency's governing statute, it could not seek additional funding from the Federal Reserve so long as the central bank is losing money.

But in a stinging 32-page ruling, Berman Jackson said Tuesday this was a legally baseless pretext to get around her original order, finding that "the defendants are unabashedly trying to shut the agency down again, through different means."

"It appears that defendants’ new understanding of 'combined earnings' is an unsupported and transparent attempt to achieve the very end the court’s injunction was put in place to prevent," Berman Jackson wrote, adding that the administration's "unilateral decision" to decline further CFPB funding would therefore be in violation.

The agency's supporters say that without it the public will be more exposed to predatory lending practices, scams and other abuse. Trump and others have accused it of politicized enforcement and called it a burden on free enterprise.

The agency was started to protect financial services consumers after the financial crisis of 2008.

Unlike many federal agencies, the CFPB is funded by the Federal Reserve, rather than through a budget set annually by Congress. But lawmakers this year slashed the CFPB's maximum allowable funding, meaning the agency may face tighter funding constraints regardless.

Source: Reuters

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Manuel

Commodity

Political

At least two oil tankers have made their way to Venezuela in recent days and others are navigating towards the country, a sign of state-run PDVSA's effort to expand floating storage and keep selling crude even as a U.S. blockade has reduced exports to a minimum.

U.S. President Donald Trump this month announced a blockade of all sanctioned vessels going in or out of Venezuelan waters as part of a strategy to pressure Venezuelan President Nicolas Maduro. The U.S. move has cut oil exports this month to about half of their November level.

The U.S. has seized two fully loaded cargoes of Venezuelan oil and its ships are patrolling the Caribbean Sea. The pressure has scared many vessel owners, prompting re-routings and u-turns. Only a fraction of ships have kept on course to the OPEC country.

Some tanker owners have insisted. At least two ships under sanctions have arrived in Venezuela over the last few days and two more that are not under sanctions are approaching its coast, according to monitoring service TankerTrackers.com.

As part of swaps and arrangements made since the country was first placed under U.S. energy sanctions in 2019, Maduro's administration pays for a long list of purchases and services with oil, including debt service to China.

The two vessels approaching Venezuela are part of a fleet used by China and Venezuela to pay debt service with crude bound for Chinese ports. It was unclear whether China will press for a U.S. waiver to secure delivery of those cargoes.

PDVSA did not reply to a request for comment. Venezuela's oil ministry and Maduro have said oil exports will continue.

PDVSA has been negotiating price discounts and contract changes with customers this month to avoid cargo returns or crude production cut-backs. But many buyers are growing impatient as there are no real alternatives to get oil cargoes out of the country, even in non-sanctioned tankers, company sources said.

A cyberattack forced PDVSA to shut down its centralized administrative system this month. The company is now delivering cargoes at its ports at a slower pace, both to fulfill loading windows for export and to store crude and fuel in ships, expanding its storage capacity.

The only loaded vessels departing are Chevron's tankers, which continue setting sail for the U.S. under Washington's authorization, and small ships carrying oil byproducts and petrochemicals, shipping data and PDVSA documents showed.

A similar situation in 2020, when Washington ramped up pressure on Maduro by imposing sanctions on PDVSA's main trading partners, forced the country to switch to little-known intermediaries to keep selling its oil to Chinese buyers.

Those U.S. measures triggered oil output cuts, oilfield shutdowns and severe scarcity of motor fuel. It took Venezuela years to reach 1 million barrels per day (bpd) of output again, recover some refining capacity and stabilize exports.

As of this week, almost two dozen tankers were visible from shore near the Jose port waiting for loading windows or for departure instructions. The volume of oil stuck in undeparted tankers increased to some 16 million barrels, from 11 million barrels in mid-December, according to the data and documents.

Source: Reuters

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Manuel

Commodity

Copper recorded the longest winning run since 2017 in a December rally powered by the prospect of more stress in the supply chain.

The metal rose 2.7% to settle at $12,558.50 a ton, the eighth day of gains, with positive sentiment showing resilience. Traders have been rushing metal to the US in anticipation of potential tariffs, tightening the market in the rest of the world.

Copper hit a record just below $13,000 a ton Monday in an end-of-year surge, before paring gains. Futures have rallied by more than 40% this year, setting up the biggest annual advance since 2009. A weaker US dollar — which makes metals less costly for buyers in other currencies — also has helped to bolster the gains, with a gauge of the greenback losing about 8% in 2025. Copper Racks Up Longest Rally Since 2017 With Bulls at Helm_1

Copper Racks Up Longest Rally Since 2017 With Bulls at Helm_1

Supply issues have dominated metals this year, with copper mines from Indonesia and Chile to the Democratic Republic of the Congo suffering accidents. Aluminum production, meanwhile, is under threat from higher energy costs and supply limits in China, while zinc mines have also been disrupted.

For copper, it’s the threat of US import tariffs that remain the major driver. Mercuria Energy Group Ltd. warned in November there would be an extreme shortage of the metal in the rest of the world in 2026.

In the coming months, copper is likely “to be led by sentiment from investors over US copper specific tariffs, with focus on regional levels of global stocks and material entering the US, rather than underlying global fundamentals,” according to Natalie Scott-Gray, senior metals analyst at StoneX Financial Ltd.

The premium for March copper futures on Comex over comparable contracts on the London Metal Exchange has come down in recent days, but inventories in the US exchange are still rising, she said. Along with a “warming” macroeconomic outlook and supply risks, “the narrative hasn’t changed for copper with this perfect storm situation” seen throughout the fourth quarter, Scott-Gray said.

All other metals on the exchange rose, led by nickel, after top producer Indonesia flagged plans to cut supply in order to boost prices.