The minutes of the latest US Federal Reserve policy meeting have been released, shedding light on internal debates within the central bank. They confirm what was already suspected: policymakers were deeply divided when they decided to cut interest rates on 10 December. Two committee members would have preferred to keep rates unchanged.
Their concern was that another rate cut while inflation remains above 2.0% could be interpreted as a departure from the inflation target, allowing price pressures to become entrenched at excessively high levels.
Inflation credibility and bond market reactions
They warned that if the Fed signals a willingness to tolerate persistently higher inflation, bond markets would likely respond by demanding higher yields to finance US government debt. In such a scenario, even if policy and short-term rates fall, long-term yields may fail to follow and could even rise.
This concern appears justified: US long-term yields ended 2025 at levels similar to those of late 2023, slightly above 4%, despite six policy rate cuts over the past 24 months, bringing the federal funds rate from 5.5% down to 3.75%.
It is therefore unsurprising that other committee members acknowledged that the decision to cut rates was difficult and that they would also have been prepared to leave rates unchanged.
Calls for stronger easing
On the other side of the debate stands Stephen Miran, recently appointed by Donald Trump. He has argued in favour of a more aggressive rate cut to support the labour market, which has slowed in recent months, despite economic growth still reaching 4.3% in the third quarter.
Unclear monetary policy
For investors, these divisions within the Federal Reserve are far from ideal. They make it harder to identify a clear underlying direction for US monetary policy, potentially weighing on investment decisions.
That said, recent growth data suggest that the economy is coping relatively well with the current policy stance. Moreover, the Fed itself expects to cut rates once more in 2026.
Taken together, these elements point to a solid outlook for the US economy this year, reinforcing the case for remaining invested in the United States.