Fed Divisions Over 25 bps Rate Cut: Labor Market and Inflation Concerns Drive Dissent

This analysis is based on the New York Times report [5] covering the Federal Reserve’s (Fed) December 10, 2025 interest rate decision.

On December 10, 2025, the Fed’s Federal Open Market Committee (FOMC) voted 9-3 to cut the benchmark interest rate by 25 basis points (bps) to 3.5–3.75% [2][3]. This three-way dissent—last observed in 2019—reflects deep divisions among officials over two core economic pressures: a cooling labor market and persistently elevated inflation relative to the Fed’s 2% target [3]. The dissenters articulated distinct policy rationales:

• Austan Goolsbee (Chicago Fed)
  : Favored delaying rate cuts until early 2026 to await updated inflation and labor market data, arguing the delay would involve minimal risk [2][4].
• Jeffrey Schmid (Kansas City Fed)
  : Dissented due to concerns inflation remains “too hot,” noting economic momentum and a largely balanced labor market warrant maintaining modestly restrictive policy [2][3].
• Stephen Miran (Fed Governor)
  : Pushed for a larger 50 bps cut, citing growing labor market weakness—an view aligned with Chair Jerome Powell’s post-meeting note of potential negative job growth in recent months [1][2].

1. Rare Policy Polarization
   : The three-way dissent signals an unusually high level of disagreement within the FOMC, contrasting with recent years of relative policy consensus [3].
2. Dual Mandate Tensions
   : The split exposes competing priorities tied to the Fed’s dual mandate: Schmid’s focus on preserving inflation-fighting credibility versus Miran’s and Powell’s concerns about labor market stability [2][3].
3. Data Dependency Reinforced
   : Goolsbee’s emphasis on waiting for more data suggests future rate decisions will be highly reactive to incoming reports (e.g., nonfarm payrolls, CPI), reducing predictability for markets [2][4].
4. Conditional 2026 Easing Consensus
   : Despite the dissent, Goolsbee remains optimistic about “significant” rate cuts in 2026 if inflation returns to the 2% target, indicating a latent consensus on future easing under favorable conditions [2][4].

• Risks
  : The policy division may increase stock and bond market volatility as investors reassess the path of future rate cuts [0]. Schmid’s dissent also highlights the risk of the Fed eroding its inflation-fighting credibility if rate cuts are perceived as premature [2][3].
• Opportunities
  : The focus on data dependency provides markets with a clear framework for anticipating policy moves, while the latent consensus on 2026 easing could support economic growth if inflation cools [2][4].

• FOMC voted 9-3 on December 10, 2025, to cut rates by 25 bps.
• Three dissenters with distinct rationales: wait for data (Goolsbee), inflation concerns (Schmid), larger cut due to labor weakness (Miran).
• Core divisive factors: cooling labor market and elevated inflation.
• First three-way FOMC dissent since 2019.
• Chair Powell noted potential negative job growth in recent months.
• Goolsbee expects significant 2026 rate cuts if inflation meets the 2% target.