Fed Minutes Reveal Divide on Rate-Cut Pace as Risks Shift

9 October 2025 - 09:36 CEST
Credit: US State Department via Wikimedia Commons

The US Federal Reserve’s September meeting minutes revealed widening divisions among policymakers leaning toward further rate cuts this year. 

Fed governors are split over how quickly to ease policy as inflation remains above the central bank’s target and amid increasing signs of cooling labour market.

Policymakers differ on scale

At the 16–17 Sept meeting, the Federal Open Market Committee (FOMC) voted 11–1 to lower the federal funds rate by 0.25 percentage points to 4 to 4.25 percent, its only cut so far in 2025 and the first step toward policy normalization since the tightening cycle ended in late 2024.

Newly appointed Governor Stephen Miran dissented, calling for a larger half-point reduction. He argued that the neutral rate, the level of interest that neither stimulates nor restricts growth, may now be lower than the Fed assumes, meaning policy remains too restrictive.

The minutes noted that “almost all participants” saw scope for additional easing before year-end, while “a few participants” preferred to hold rates steady until clearer progress toward the 2 percent inflation goal emerges. The divide reflects a delicate backdrop: hiring has slowed, payrolls have been revised down by nearly 900,000 jobs, and consumer demand is moderating, yet core inflation remains close to 3 percent.

Officials agreed to continue reducing the central bank’s $6 trillion balance sheet but underscored that future decisions will depend on the flow of data, particularly inflation, wage growth, and employment, rather than follow a preset path.

Inflation uncertainty

Inflation remained “somewhat elevated,” with core personal consumption expenditure (PCE) running near 2.9 percent in August. While many officials viewed tariff-related price increases as temporary, a majority “emphasized upside risks” to inflation, warning that persistent readings could unsettle expectations.

Several participants also noted that productivity gains and lower net migration might reduce medium-term price pressures, yet uncertainty over tariff impacts and wage trends kept policymakers cautious. The minutes suggested most expect inflation to slip toward 2 percent by 2027 if monetary policy remains “appropriate.”

Labour data presented a mixed picture: unemployment edged up to 4.3 percent and job gains slowed, but the data crunched by the committee did not suggest a sharp deterioration. Fed staff projected modest GDP growth through 2026 and further labour-market softening, with the unemployment rate hovering slightly above its natural level before easing again.

Economic backdrop

The Fed’s decision comes as growth has softened following tariff-related price shocks and weaker consumer spending earlier this year. The unemployment rate has risen to 4.3 percent, and wage growth has slowed to around 3.7 percent annually, down from over 5 percent in 2023.

The minutes therefore reflected a “balanced approach” to avoid two risks: cutting too fast and reigniting inflation or keeping rates high for too long and risking higher unemployment.

Most markets steady; crypto slips

Markets largely took the September minutes in stride, reflecting expectations that the Federal Reserve will proceed cautiously with further rate cuts. Futures pricing still implies two additional 0.25 percentage point reductions, in October and December, consistent with the median projection of a slower but sustained easing cycle.

Treasury yields declined across maturities during the intermeeting period, with the two-year yield falling about 35 basis points as traders priced in a lower policy path. The yield curve steepened modestly, signaling expectations that near-term policy will loosen while longer-term growth remains intact. Equity benchmarks held near record highs, supported by resilient corporate earnings and the prospect of cheaper credit.

The total crypto market cap shed in the region of $80 billion overnight following the release of the minutes, with Bitcoin (BTC) falling about 1.8% and Ether (ETH) declining about 2.5% as at 07.30UTC on Thursday.

Analysts said the minutes reinforced the Fed’s data-dependent stance but exposed divisions that could complicate communication ahead of the year-end meetings. “The central bank faces an increasingly divided policy landscape,” said Joshua Mahony, Chief Market Analyst at Scope Markets. Minneapolis Fed official Neel Kashkari separately warned that easing too aggressively could reignite inflation pressures.

A gradual easing cycle generally supports risk assets, but crypto traders remain alert to volatility amid fiscal uncertainty and speculation over potential Fed leadership changes in 2026.