December Fed minutes show members unconvinced about rate cuts

29 Jan 2026 , 12:02 PM

FOMC MINUTES – HOW AND WHY THEY MATTER?

Like the RBI MPC publishes the minutes of its monetary policy meeting after 14 days, the US Federal Reserve also publishes its minutes after exactly 21 days. The minutes are an important data point for markets to gauge the future direction of interest rates in the economy. When the Fed statement is made by the Fed chair, followed by the press briefing; the focus is more on the course of action and the logic behind the decision.

The minutes actually highlight the extent of agreement / dissent within the house. Even when the majority vote is to cut rates, the minutes reveal the break-up of the vote and the views of each of these FOMC members. Also, each FOMC members puts out a dot-plot chart, which shows what rate trajectory they are expecting. For the US markets and also for the world markets, the Fed minutes give a granular picture of the US monetary policy.

BIG STORY – FOMC DIVIDED OVER PACE OF RATE CUTS

The minutes of the December FOMC meet, published late on 30-December underlined that the vote was deeply divided. While it was 10-2 in the November minutes, it turned 9-3 in December. Also, these 3 are the open dissent voices. Then there are the non-voting members who have dissented. Also, there are voting members who vote with caveats or decide to vote in favour to ensure a decision goes through. What we gather from the latest minutes is that; while FOMC members are agreeable to more rate cuts to boost growth, they are not sure of the pace of rate cuts. Most members are still expecting a dichotomy, wherein inflation will be higher and job creation lower, creating a dilemma for the Fed.

The latest minutes of the FOMC published on 30-December showed that while the Fed eventually decided to cut rates by 25 bps to 3.50%-3.75% range; the dissent votes were highest since 2019. While most of the FOMC members are open to the idea of more rate cuts, they want it specifically linked to a sustainable fall in the level of inflation. The dilemma stems from the fact that elevated levels of unemployment call for more rate cuts, but that luxury would be denied if inflation stays meaningfully higher than the 2.0% target.

FIVE THINGS WE PICKED UP FROM THE FED MINUTES

Here is what we picked up from the minutes of the FOMC published on 30-December 2025.

• The vote of 9-3 in favour of a 25-bps rate cut represented the highest number of dissent votes since 2019. It clearly hints at a house divided. While there is consensus on the need for more rate cuts, it is the timing and trajectory that is in debate.
• The FOMC dot-plot chart is now factoring in 2-3 rate cuts by end of 2027, taking the Fed rates to the range of 3.00%-3.25%. The big question is whether the Fed will front-load the rate cut and implement the first cut in January 2026 itself.
• The rate cut camp in the FOMC has been pointing to the 4.6% unemployment rate and limited non-tariff inflation impact to be more dovish. However, the dissent camp wants inflation to decisively move towards 2%. Also, 4.3% Q3-GDP growth is very comfortable.
• One concern for the policy makers is that data is trailing by 2-3 months; and it would be inappropriate to base current decisions on older data. Till that comes at par with the current situation, FOMC members will take data with a pinch of salt.
• If the resumption of bond buying is any indication, the Fed is keen to keep liquidity comfortable at the short end of the market. It is not clear if this is being used to magnify the impact of rate cuts or as a substitute for further rate cuts.

Like the CME Fedwatch is showing, rate cut decisions are likely to be a lot more laboured in the coming months. Let us take a quick look at the CME Fedwatch.

WHAT IS THE CME FEDWATCH AND WHAT IS IT TELLING US?

The CME Fedwatch table below calculates implied probabilities of future rate action based on Fed futures trading. Let us look at the table and then how to interpret the same.

Fed Meet	150-175	175-200	200-225	225-250	250-275	275-300	300-325	325-350	350-375	375-400
Jan-26	Nil	Nil	Nil	Nil	Nil	Nil	Nil	14.9%	85.1%	Nil
Mar-26	Nil	Nil	Nil	Nil	Nil	Nil	6.7%	46.4%	46.9%	Nil
Jun-26	Nil	Nil	Nil	Nil	0.7%	7.6%	28.0%	41.9%	21.8%	Nil
Sep-26	Nil	Nil	0.1%	1.7%	8.9%	23.7%	33.7%	24.7%	7.3%	Nil
Dec-26	Nil	Nil	0.7%	4.1%	13.8%	26.9%	30.7%	18.9%	4.9%	Nil
Jun-27	Nil	0.2%	1.1%	4.9%	13.6%	24.4%	27.9%	19.4%	7.3%	1.1%
Dec-27	0.1%	0.4%	2.2%	7.2%	16.1%	24.4%	24.9%	16.5%	6.6%	1.5%

Data source: CME Fedwatch

Let us look at how to interpret the CME Fedwatch table above. The sum of each cell and the cells to the left combined show the probability of that level of rate cut, at least. The current Fed rate is the shaded column. Here are a few interpretations based on data.

• In the January 2026 Fed meeting, the probability of a 25-bps rate is just 14.9% or you can say it is unlikely. Normally, a probability of over 70% makes it likely.
• As of the June 2026 Fed meeting, it is highly likely that there will be a 25-bps rate cut to the level of 3.25%-3.50%; with a probability of 78.2%, which is significant.
• By December 2026, there is a 76.2% probability of 2 rate cuts of 25 bps each, taking the rates to 3.00%-3.25%. The assumption is that rate cuts will be front-ended.

The CME Fedwatch appears to be indicating that we could see one rate cut of 25 bps by June 2026 and one more by December 2026. Once the front-loading happens, the Fed may abstain from further rate cuts in 2027.

KEY TAKEAWAYS FROM FED MINUTES FOR INDIAN INVESTORS

Here is what Indian investors can takeaway from the Fed minutes.

• The US Fed may be very close to the end of the rate cut cycle. Hence, any further rate cuts from here would be very calibrated. However, with a January Fed rate cut likely, it opens doors for the RBI to persist with its dovish policy to boost domestic growth.
• The US Fed rates are close to equilibrium and that has helped boost the GDP growth in Q3 to 4.3% for the US economy. That is a positive for Indian exports of goods and services, assuming that the tariff issues and the visa issues are sorted out quickly.
• Another rate cut by the Fed would weaken the dollar index and also protect the Indian rupee from falling too steeply from current levels. That would reduce the pressure on the RBI to defend the rupee with dollar sales, thus protecting the forex reserves.

Overall, the signal that the US will front load rate cuts in 2026, is positive for the Indian economy. A lot will depend on how soon the Indo-US trade deal can be stitched.

 

LLM Summary There are some interesting signals coming from the minutes of the FOMC. The first signal is that the US Fed rates are now getting close to equilibrium. However, the growing dissent within the FOMC means that the Fed may front load a couple of rate cuts in year 2026 and just maintain status quo in 2027. That would also bring some macro stability globally. For the RBI, it gives them more policy leeway to stay on the dovish path for now and then focus on fiscal measures, ideally through the Union Budget announcement. The US Fed finds itself in a dilemma with respect to rate action. The spike in unemployment to 4.6% makes a case for rate cuts as does the fact that inflation would stay benign, bereft of the tariff impact. However, the PCE inflation is closer to 3%, which is hardly a level that encourages a dovish view. Also, the GDP growth for Q3 stood at 4.3% in the US, which makes rate cuts look redundant. But the real concern stems from the fact that much of the US data is outdated, due to the interim disruption. That is the weak link!