The likelihood of a hold in US interest rate policy increasing in 2026 — FOMC minutes reflect policymakers' conflicts

According to reports from PANews, minutes from the Federal Open Market Committee (FOMC) held on December 9–10 reveal that the likelihood of keeping interest rates unchanged at the next meeting in January 2026 is increasing. While almost all officials believe that further rate cuts are appropriate if inflation continues to decline steadily, there is still disagreement over the timing and magnitude of such cuts. This uncertainty is currently the most prominent feature of the Federal Reserve’s (Fed) policy decision-making process.

Support for Rate Cuts and the “Delicate Balance”

An interesting point in the minutes is that some officials who supported lowering the policy rate used the phrase “this decision is a ‘delicate balance.’” This suggests that maintaining the current rate was also a fully justifiable option. In fact, the minutes record that some officials supported “maintaining the target range” as well.

This complex situation illustrates how difficult the decision-making process is for Fed officials. Some officials have indicated that after this meeting’s rate range reduction, “it would be appropriate to hold the target range steady for a while.” In other words, there is a cautious approach favoring a phased strategy, where after one cut, a period of observation is warranted.

The median forecast released after the meeting indicated a 25 basis point rate cut in 2026, but individual forecasts vary widely. This broad distribution of expectations symbolizes the depth of disagreement among officials. Meanwhile, many investors anticipate at least two rate cuts next year, leading to a clear divergence between market expectations and official outlooks.

Inflation and Unemployment—Two Threats Dividing Policy Makers

The minutes further highlight a deep-rooted disagreement among policymakers regarding which poses a greater threat to the US economy: inflation or unemployment. The majority of participants pointed out that “shifting to a more neutral policy stance could help avoid a serious deterioration in the labor market.”

At the same time, several participants expressed contrasting concerns. They pointed out the “risk of entrenched high inflation” and warned that further rate cuts under such conditions could be “misinterpreted as a weakening of the commitment to achieve the 2% inflation target.” This statement reflects caution about undermining the commitment to price stability and emphasizes the importance of maintaining credibility in monetary policy.

In essence, officials are torn between the need to continue easing to protect the labor market and the need to tighten to control inflation.

Data Discrepancies Amplify Policy Uncertainty

Because the government shutdown from mid-October to mid-November limited the availability of typical economic data, policymakers faced additional challenges in making decisions. This data gap is one of the factors complicating policy choices.

Since the meeting, newly released data have not necessarily aligned with officials’ views. Instead, they continue to send conflicting signals. The November unemployment rate rose to 4.6%, the highest since 2021, reinforcing the case for rate cuts among supporters. Meanwhile, the consumer price index (CPI) inflation rate fell below market expectations, suggesting easing inflation pressures.

Conversely, the third-quarter GDP growth rate was 4.3% annualized, the highest in two years. This robust growth is likely to heighten inflation concerns among officials who opposed rate cuts in December. Strong economic growth is generally interpreted as a sign of medium-term inflation risks.

Market Consensus Moving Toward Holding Rates Steady

Amid this complex backdrop, the market is gradually leaning toward the possibility of maintaining rates at the January 2026 Fed meeting. The divergence in officials’ views, conflicting data signals, and the difficulty of policy decisions are fostering a more cautious stance.

Officials have indicated that new data released in the coming weeks could be useful, but no clear direction has yet emerged. Facing the trade-off between inflation and unemployment, the Fed’s option to keep rates unchanged may be a strategic decision to wait for more information.