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Why the Fed Minutes Matter More Than the Press Conference
 

With so much dissension and disagreement in the Federal Open Market Committee (FOMC), the minutes of recent meetings have become more revealing. The minutes from the December Fed meeting shed more light on the character of those disagreements than Powell was willing or able to share at the press conference. During that press conference, Powell emphasized consensus amid uncertainty and portrayed disagreement within the Fed as a natural consequence of a multidimensional policy environment. Read alongside those remarks, the minutes reveal a more fractious narrative, one marked by deep and structural differences that are likely to shape monetary policy well into 2026. Powell framed disagreement as technical. The minutes suggest it is structural.

A Committee Without An Anchor
 

As a reminder, the FOMC members displayed striking dispersion with their votes. While the nine votes in favor of a 1/4 percentage rate cut were sufficient to carry the decision, the minutes indicated that a few of the yes votes came from FOMC members who “indicated that the decision was finely balanced or that they could have supported keeping the target range unchanged”. Two votes opposed the rate cut outright and wanted to leave rates unchanged. The third opposing vote wanted a 1/2 percentage point cut. Specifically, in favor were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Susan M. Collins; Lisa D. Cook; Philip N. Jefferson; Alberto G. Musalem; and Christopher J. Waller. Stephen I. Miran wanted the deeper cut. Austan D. Goolsbee and Jeffrey R. Schmid wanted no change.

Powell’s Consensus Narrative vs. the Reality in the Minutes
 

Powell framed the lack of unanimity as a question of risk-weighting rather than disagreement over fundamentals. “Everyone around the table agrees that inflation is too high and that we want it to come down,” he said, adding that officials also agree the labor market has softened. Where views diverge, Powell claimed, is “how do you weight those risks and what does your forecast look like,” describing the decision as a “close call” driven by the “complicated, unusual, difficult situation” tugging on the Fed’s dual mandates. Powell’s claim about inflation attitudes is particularly important given the Fed will likely spend a lot of time talking up its inflation-fighting credibility even as it cuts rates this year due to political and economic pressures.

The minutes suggest that the tension is forcing the Fed to confront a confluence of opposing economic views that resists clean consensus and raises the odds of persistent dissension. Importantly, a tension between inflation rhetoric and employment risk runs through the minutes.

Inflation: Confidence in Theory, Unease in Practice
 

Powell expressed confidence that inflation will continue to move lower over time. In aggregate, the minutes reflect that view. However, “a majority of participants remarked that overall inflation had been above target for some time and had not moved closer to the 2 percent objective over the past year”. The Fed’s staff reinforced these concerns by concluding that the upside risk to inflation has become more precarious given that inflation has remained above the Fed’s 2% target for four straight years. Still, some participants claimed that those upside risks have declined.

In a likely reference to the Fed’s Beige Book (which in 2025 was full of vivid descriptions of inflation pressures), the minutes reported that “some participants stated that their business contacts had reported persistent input cost pressures unrelated to tariffs”. Several of these participants in turn reported that “weaker demand limited the ability of some firms to raise prices or that business productivity gains might enable some firms to manage these cost pressures”. 

The minutes reported that “some participants highlighted the risk that elevated inflation might prove more persistent than expected”. These fears likely stem from the lingering and uncomfortable uncertainty about the ultimate impact of a fluid tariff regime. The minutes reported that a majority of participants expected disinflation in housing services to continue while a few participants also saw ongoing disinflation in core nonhousing services. As usual, this suggests the Fed finds plenty of comfort in the relatively tame long-term expectations for inflation based on survey and market data. As usual, these assessments suggest the Fed finds plenty of comfort in relatively tame long-term inflation expectations based on survey and market data.

If inflation will actually making a soft landing to the Fed’s 2% target in 2027 and 2028 as the current central tendency in the projections insists, the journey will likely continue to feature sticky inflation… and plenty of jawboning to convince financial markets the Fed will not allow tariffs, for example, to cascade into persistently high inflation. According to the minutes, “some participants noted concerns that a more prolonged period of above-target inflation could risk an increase in longer-run expectations”. Four years already seems like a prolonged period, so I am not convinced that a few more years above 2% will dissuade the Fed from continuing to cut rates to try to address weakness in the labor market.

Taken together, the minutes show a Fed that is far more concerned about labor-market fragility than its public messaging suggests. By incorporating that calculus, the bar for another rate cut looks lower than current market pricing implies”.

Labor Markets: Where the Fed’s Anxiety Really Shows
 

The FOMC sounded more unified about the employment picture. As a result, I expect in due time the Fed will give sway to cutting rates again sooner than later, as soon as January. According to the CME’s FedWatch tool, the current odds for a rate cut sit at a paltry 15% for the January 28th meeting, so I realize my perspective is an outlier. However, in a coming year that should deliver its share of outlier events, I think a January rate cut will be the least of the economic and financial surprises.

In December’s press conference, Powell acknowledged labor market softening. Powell said the Committee agreed that “the labor market has softened” and emphasized that employment faced “further risk”. However, he downplayed the urgency of the perceived deterioration. By contrast, the minutes uncovered some deeper anxieties about the employment picture and now give me further reason to believe in the high possibility for a January rate cut. For example, the minutes reported that several participants presented a case of potential signals of “greater fragility in the labor market”.

Why I am Expecting a January Rate Cut
 

The minutes reported that “participants generally assessed that, under appropriate monetary policy, the labor market likely would stabilize next year.” This conditional framing supports my expectation for more rate cuts than the market currently assumes. Notably, the central tendency of the Fed’s projections pegs 2025 as the peak year for unemployment. Any negative divergence from that assumption would strengthen the case for additional rate cuts.

Conclusion
 

The Fed as a group positions its statements for downside risks to employment and upside risks to inflation. However, the balance of its attention suggests the Fed is prepared to act as though inflation is well under control and employment is the more fragile component of the economic picture. I assume the stock market’s complete comfort with the current tensions comes from an abiding belief in the lower trajectory for interest rates. The market has already been gifted three rate cuts with the indices at or near all-time highs. The central tendency for rates in 2026 is 2.9% to 3.6%. The non-zero possibility that the Fed does not cut rates at all this year looks to me like window dressing meant to preserve the Fed’s inflation-fighting credibility.

I am betting on rate cuts to continue in January and an still positioned in the Goldman Sachs Access Inflation Protected USD Bond ETF (GTIP) as a main hedge against the stagflationary potential for more rate cuts in the face of sticky inflation. GTIP currently yields 4.2% and gained 1.9% in 2025. GTIP is down about 17% from its 2021 all-time high.
 

Goldman Sachs Access Inflation Protected USD Bond ETF (GTIP) topped out at its April high and look to keep churning as the bond market nervously awaits more developments in monetary policy.

Be careful out there!

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