Fast Summary Card
- Newly released FOMC Minutes show policymakers remain cautious, internally divided, and highly sensitive to shifting economic risks.
- Officials debated the appropriateness of the October rate cut, and whether another cut in December should even be considered.
- Concerns ranged from inflation sticking too high, to risks of a disorderly stock-market drop, especially around AI-driven valuations.
- Nearly all participants agreed to end quantitative tightening (QT) on December 1.
What the Minutes Reveal
The latest FOMC Minutes offer one of the clearest looks yet at the Fed’s internal tensions. The Committee is far from unified — not just on the pace of rate cuts, but on the broader economic risks facing the U.S.
1. A Split on the Path of Cuts
- Most participants believe more rate reductions will be appropriate over time.
- Several, however, questioned the need for a December cut.
- Others assessed that a December cut could be appropriate if incoming economic conditions match their expectations.
This reflects a Fed operating without reliable data due to the shutdown — raising uncertainty inside the room just as much as outside.
2. Concern Over Inflation Becoming Entrenched
A significant number of officials warned that cutting rates too quickly could:
- Re-ignite inflation
- Signal that the Fed is not fully committed to its 2% target
- Encourage misinterpretation by markets
Inflation remains “somewhat elevated,” and the lack of October CPI data intensifies this concern.
3. Fear of a Sharp Drop in Stock Prices
Several participants highlighted the risk of a disorderly fall in equity markets, particularly if:
- Tech valuations reset
- AI-linked stocks undergo rapid repricing
- Investor expectations shift abruptly
This concern was described as “notable,” indicating the Fed is watching financial-stability risks closely.
4. QT Will End on December 1
Nearly all participants supported ending balance sheet reduction (QT) next month.
Key points:
- The Fed wants its portfolio to roughly match the composition of outstanding Treasuries.
- Some officials prefer a larger share of T-Bills, citing flexibility and liquidity management.
5. Economic Outlook: Slightly Stronger Growth
The Fed staff’s forecast showed modestly stronger real GDP growth through 2028 compared to the September projection.
But policymakers still differed on short-term risks:
- Some fear weakening labor conditions
- Others worry about overheating financial markets
- Many prefer to pause to gather more data after the shutdown
Market Reaction
The U.S. Dollar strengthened immediately after the Minutes as traders interpreted the tone as cautious and slightly more hawkish than expected.
But markets remain split: the FedWatch tool shows only a 50% chance of another cut in December — down sharply from 70% a week earlier.
Investors now view the path forward as two-sided risk:
- A cautious Fed may hold rates steady longer.
- But weak incoming labor data could shift sentiment quickly.
Why This Matters for Traders
The biggest takeaway from the Minutes:
The Fed is not unified — and December is absolutely not guaranteed.
Key sensitivities:
- Missing October jobs + inflation data
- Thursday’s delayed September Jobs Report (critical)
- Stock-market stability concerns
- Shutdown-related distortions
- A divided Committee with little fresh data
Expect more volatility, not less, heading into year-end.
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