Fed Minutes Reveal Split on Interest Rates Headed Into 2026

In a reflection of the emerging divide developing at the Federal Reserve over monetary policy, minutes released Tuesday of the central bank’s last meeting of 2025 showed a Fed divided between worries about a slowing labor market and persistent inflation.

The central bank met on Dec. 10 and cut interest rates by a quarter point, but there were an unusual three dissenting votes – two for doing nothing and one for a larger cut.

The divergence of opinion on the future of monetary policy is likely to only grow in 2026 as Fed Chairman Jerome Powell reaches the end of his leadership in May. Powell could decide to stay on as a governor, but he has given no indication he would do so and he is a frequent target of criticism from President Donald Trump.

Trump will get to nominate a new chairman, and all of those who are in the mix have professed the need for interest rates to be lower. They could end up there anyway, if the labor market continues to weaken and inflation does not increase.

“Policymakers are all over the place because there’s uncertainty in nearly every direction,” said David Russell, global head of market strategy at TradeStation. “They want to cut but inflation is still too high. They’re unsure about data and see no reason to rush. They also know stimulus is coming and is expected to boost GDP in 2026. Markets could view these minutes as slightly hawkish because some doves were on the fence about easing. We could be near the end of this rate-cutting cycle.”

The minutes did show there is also support for holding rates at their current level for some time.

“With respect to the extent and timing of additional adjustments to the target range for the federal funds rate, some participants suggested that, under their economic outlooks, it would likely be appropriate to keep the target range unchanged for some time after a lowering of the range at this meeting,” the minutes said.

Complicating things, the Fed has not had a clear reading of the economy since the government shutdown in October that lasted into November. That either delayed or led to the cancellation of key reports on inflation and employment. Most economists say that reports that were released were compromised by lacking key data.

“Murky data from the government due to the longest shutdown in history certainly isn’t helping investors make sense of where we are at the moment, but my analysis, based on the totality of the incoming reports, is that activity is ramping up, and inflation remains above target amidst labor conditions that are just okay, not terrible or great,” Jose Torres, senior economist at Interactive Brokers, wrote.