Powell’s December Remarks Highlight the Growing Division Within the Fed

Federal Reserve Chair Jerome Powell’s message that investors should scale back expectations for a December rate cut has brought renewed focus to the growing divide within the central bank over how to balance jobs and inflation.

‍

While Powell acknowledged that some policymakers are increasingly worried about signs of a slowing labor market, others within the Fed continue to emphasize that inflation remains too high to justify more aggressive easing.

‍

The ongoing government shutdown, which has halted the release of key economic data, is only deepening the rift by limiting the flow of official information that could guide policy decisions.

‍

The Fed’s latest move a 10-2 vote by the Federal Open Market Committee to trim the benchmark federal funds rate by a quarter percentage point to a range of 3.75% to 4% marked the second consecutive cut this year. But for the first time in six years, the decision drew dissents from both directions. One policymaker favored a larger 50-basis-point reduction, while another argued that the Fed should have left rates unchanged.

‍

In unusually candid remarks, Powell used his opening statement at the post-meeting press conference to drive home a key message: a December rate cut is far from guaranteed. “A further reduction in the policy rate at the December meeting is not a foregone conclusion far from it,” Powell said. Later, when pressed by reporters, he added, “There’s a growing view that perhaps this is the point where we should wait a cycle before taking another step.”

‍

Markets reacted swiftly. Treasury yields spiked, with the 10-year note climbing back above 4% in its biggest single-day jump in nearly five months. Futures tied to the Fed’s benchmark rate now indicate that another cut at the next policy meeting, scheduled for December 9–10, is only a moderate possibility no longer the near certainty traders had priced in earlier this week.

‍

“This wasn’t something markets expected; Powell’s pushback came as a surprise,” said Pooja Sriram, an economist at Barclays. “It’s clear from the press conference that there was an intense debate among policymakers about what to do in December.”

‍

The Fed first cut rates in September the initial reduction of the year after signs of a hiring slowdown raised concerns about the health of the labor market. But several officials have since voiced apprehension about cutting too aggressively.

‍

Updated projections released after that meeting showed that 9 of 19 FOMC members anticipated no more than one additional cut for the year, with seven preferring no further easing through 2025.

‍

Wednesday’s meeting marked the third consecutive FOMC gathering to feature dissenting votes, something not seen since 2019. The disagreements come at a particularly challenging moment, with the government shutdown leaving policymakers to rely on private-sector reports and state-level data to gauge employment trends.

‍

Recent announcements from major employers including Amazon, General Motors, and Applied Materials have highlighted modest layoffs, though overall job losses remain limited based on state-level unemployment filings. Powell pointed to those figures as evidence that the labor market is cooling but not collapsing.

‍

Still, his comments made clear which side of the internal debate he aligns with. Powell downplayed inflation risks and argued that the central bank has a duty to support the labor market amid signs of weaker hiring, even if part of the slowdown stems from the Trump administration’s tighter immigration policies.

‍

“Some believe these are purely supply-side issues that monetary policy can’t address,” Powell said. “But others, myself included, see a demand component and that means we should act to support employment when the data justify it.”

‍

If Powell’s cautious stance on December ultimately signals a pause in the easing cycle, it could heighten tensions between the Fed and the White House. President Donald Trump has repeatedly criticized Powell for not cutting rates fast enough, raising renewed concerns about the central bank’s independence.

‍

Joe Brusuelas, chief economist at RSM US LLP, said the internal disagreements are likely to persist. “I’d expect dissents to become a regular feature of Fed meetings going forward,” he noted, citing both the upcoming rotation of voting members in 2026 and the potential for Trump to appoint a successor to Powell when his term ends in May.

‍

“There’s going to be significant diversity of opinion about the right path for policy,” Brusuelas added. “Between the political pressure coming from the White House, the uncertainty over inflation, and the ongoing debate about how much risk the Fed should take, this divide inside the central bank isn’t going away anytime soon.”

‍