Please consider the FOMC Statement from the Fed’s December 9-10 Meeting.

Available indicators suggest that economic activity has been expanding at a moderate pace. Job gains have slowed this year, and the unemployment rate has edged up through September. More recent indicators are consistent with these developments. Inflation has moved up since earlier in the year and remains somewhat elevated.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months.

In support of its goals and in light of the shift in the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 3-1/2 to 3‑3/4 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Three Dissents

Voting for the monetary policy action 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.

Voting against this action were Stephen I. Miran, who preferred to lower the target range for the federal funds rate by 1/2 percentage point at this meeting; and Austan D. Goolsbee and Jeffrey R. Schmid, who preferred no change to the target range for the federal funds rate at this meeting.

Stalled Progress on Inflation

The Wall Street Journal comments Fed Cuts Rates Again, Signals It May Be Done for Now

The Fed voted 9-3 for the reduction on Wednesday, the first time in six years that three officials cast dissents. Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeff Schmid thought the reduction wasn’t warranted, while Fed governor Stephen Miran favored a larger, half-point cut.

Public comments from Fed officials in recent weeks revealed a committee so fractured that the decision likely came down to how Fed Chair Jerome Powell wanted to proceed.

Powell’s term as chair expires in May, meaning he will preside over just three more rate-setting meetings. President Trump has said he is close to naming a successor—raising questions about whether whoever follows will be able to command the same deference.

Inflation-wary hawks see a central bank cutting into an economy that is stronger than it looks and worry that interest rates may no longer be high enough to put downward pressure on inflation. That’s a bigger worry with each passing year, since inflation has been running above the Fed’s target since 2021.

By contrast, employment-focused doves see little evidence that lower rates are reviving sluggish housing and labor markets. They worry the risks are asymmetric: If unemployment accelerates, fixing it will require far more aggressive action than if inflation lingers near 3%.

The combination of firm price pressures alongside a cooling labor market presents an unsavory trade-off for the Fed, one it hasn’t faced in decades. When officials confronted a similar dilemma, during the so-called stagflation of the 1970s, the central bank’s stop-and-go response allowed high inflation to become entrenched.

Nathan Sheets, global chief economist at Citi, said he is watching January price data to see if businesses that have held back tariff-related cost increases reset prices higher at the start of the year. “If we are going to see more tariff pass-through, the natural time for it to come is during those annual pricing increases,” he said.

Sheets is among those who worry the Fed has little margin for error on inflation. The Fed targets an inflation rate of 2%, but a key measure of inflation stood at 2.8% in September.

“I don’t think inflation is going to break out on the upside, but by the same token, you’re not at 2% and there’s no compelling narrative that you’re going to get back to 2% anytime soon,” he said. “And that definitely gives me pause.”

FOMC Press Conference

The press conference is live at 2:30 Eastern.

The press conference rates to be interesting.

The Fed Will Soon Have Its Hands Full

One reason to cut now is the Fed may have a hard time next year.

That’s a bad excuse but I believe it’s how the Fed thinks.

Spotlight Health Care

The Fed’s preferred measure inflation is the Personal Consumption Expenditures (PCE) price index.

The PCE puts a much higher weight on health care than the CPI. And health care costs are soaring.

I discussed Obamacare in my post How Much Will 4.5 Million Florida Residents Pay for Obamacare in 2026?

Florida has over ~4.7 million residents enrolled in ACA exchange plans, 97% of whom are currently subsidized.

A 64-yr old couple earning $90,000/yr would go from paying $637/mo to a jaw-dropping $3,176/mo…or FIVE TIMES AS MUCH FOR THE SAME POLICY. That’d be $38,000/YR IN PREMIUMS ALONE, or 42% OF THEIR GROSS INCOME.

The KFF foundation estimates an average 114 percent increase, so I don’t doubt the numbers presented, or the rationale that Florida will be worse than average.

More importantly, to the PCE, Medicare and corporate healthcare costs are soaring.

The average rate increased for both are about 9.25 percent.

Health Care Inflation Bomb Makes the Fed’s 2 Percent Target Almost Impossible

On December 8, I commented Health Care Inflation Bomb Makes the Fed’s 2 Percent Target Almost Impossible

Let’s discuss 2026 health care premiums and what they mean to the Fed’s preferred measure of inflation.

I expect a rise in the Health Care weight in the PCE. I also expect a net 1.5 percentage point increase in PCE inflation in 2026 due to health care.

These estimates stem from health care price hikes across the board (Medicare and corporate plans), not counting the huge ACA impacts.

The Fed’s PCE inflation target is 2.0 percent. If I am in the ballpark, health care alone rates to take up 1.5 percentage points of that target, again, not counting Obamacare!

Unless jobs collapse, and they easily can, the Fed is going to struggle to justify rate cuts. And if they do cut, the most likely reason will be jobs. It’s not a good place for the Fed.

Click above link for details and the health care math.

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