FOMC Minutes Signal Cautious Path for Future Fed Rate Cuts in 2026

The latest Federal Open Market Committee (FOMC) minutes have shed light on where U.S. Federal Reserve officials stand regarding interest rate cuts as the new year approaches. While most policymakers remain open to further rate reductions if inflation continues to ease, several officials believe it may be prudent to pause for a period and assess the cumulative impact of the Fed’s recent policy moves.

According to the minutes from the December FOMC meeting, most participants agreed that additional downward adjustments to the federal funds rate could be appropriate over time, provided inflation continues its gradual decline toward the Fed’s 2% target. However, opinions diverged on the timing and pace of future cuts. Some officials argued that keeping interest rates unchanged for a while would allow the Fed to better evaluate the delayed effects of previous rate cuts on the labor market and broader economic activity.

The discussion followed the Fed’s decision on December 10 to cut interest rates by 25 basis points for the third time this year, a move aimed at supporting a softening labor market. Several participants noted that holding rates steady could help policymakers determine whether recent actions are sufficient to guide the economy toward a more neutral policy stance. This pause would also give officials more confidence that inflation is sustainably moving back to target levels.

Recent inflation data has supported a more dovish outlook. The November Consumer Price Index (CPI) rose 2.7% year over year, below market expectations, while core CPI came in at 2.6%, also under forecasts. Despite this progress, New York Fed President John Williams cautioned that temporary distortions, including those linked to the U.S. government shutdown, may have influenced the data.

The minutes emphasized that monetary policy is not on a preset course and will continue to be guided by incoming economic data, evolving risks, and overall financial conditions. Fed Governor Chris Waller has reiterated that labor market trends should remain a primary focus heading into 2026, noting that inflation is unlikely to reaccelerate while employment indicators suggest room for further easing.

Market expectations align with this cautious stance. CME FedWatch data shows an 84% probability that the Fed will leave rates unchanged at the January FOMC meeting. Similarly, crypto prediction markets such as Polymarket indicate strong odds that interest rates will remain steady, reflecting broad consensus that the Fed is likely to pause before making its next move.