Federal Reserve Cuts, but Dissension in the Ranks

Fed Delivers Expected Rate Cut 

At the conclusion of their meeting on Wednesday, the Federal Reserve (Fed) cut the Federal Funds Rate target by another 0.25%. This was expected, and markets didn’t react much to the move. Three members voted against the cut: Stephen Miran, who wanted to see a 50-basis-point cut (a Trump appointee and a Dovish), and Austan Goolsbee and Jeffrey Schmid, both of whomwanted no cut.   

Why Fed Dissents Matter 

We have now seen dissensions at the past two meetings. On its face, you wouldn’t think disagreeing on the direction of the monetary policy of the United States is a rarity, but you would be wrong. Prior to these consecutive dissents, the most recent dissent was at the September 2019 meeting. Before that, the December 2014 and June 2013 meetings. And before that, you must look all the way back to October of 1990. In the world of the Fed, a dissent is a major occurrence when unanimity is the norm.   

Treasury Purchases and Mortgage Rates 

Another major announcement from the meeting was that, beginning December 12, 2025, the Fed would start purchasing $40 billion of US Treasury Bills (short-term securities) each month.Since mortgages are long-term securities, we may think this wouldn’t impact mortgage rates. That is wrong. This is good news for mortgage rates as US Treasury Secretary, Bessent, has acknowledged his plan to use this increased Fed buying to increase short-term debt issuance. He could then lessen the issuance of long-term debt. This would decrease the supply of long-term treasuries, pushing yields and rates down.   

What a New FOMC Could Mean 

2026 will be a new year and a new Federal Reserve Open Market Committee (FOMC), the committee responsible for making monetary policy decisions. The membership comprises a combination of Governors (appointed by the President) and Regional Presidents, who are elected by the non-banking directors of their respective regional banks and approved by the Federal Reserve Governors. Only the President of the New York Fed is a permanent member of the FOMC.  

The upcoming year will see four changes to the membership on January 1. At an early glance, the changes would push the committee to a more Dovish stance, but it is difficult to know for sure. One definite Dovish change will be that Chairman Powell’s term will end in May 2026. This will allow the US President to appoint a new, and likely Dovish, chair to lead the committee. 

Chairman Powell Signals Labor Market Weakness 

At the press conference after the meeting, Chairman Powell made a couple of interesting points to note. He admitted that the labor market was not “solid,” as stated previously and currently by members. He indicated the Bureau of Labor Statistics (BLS) is likely overstating employment numbers by 60,000/month. We have clearly seen this in the revisions and the Quarterly Census of Employment and Wages (QCEW), which also comes out from the BLS. He also acknowledged what has been said for months, that the tariff-based inflation is short-lived, and that inflation is close to the 2% target when excluding the tariffs. 

Looking Ahead: Jobs Report Could Move Markets 

Next week will be very important for economic news, as we receive some catch-up reports from the shutdown. 

Tuesday, December 16: BLS Jobs Report for BOTH October and November. Watch out, as the BLS seems stuck in the overstate-revision cycle, and this could cause volatility in rate markets. 

Thursday, December 18: Consumer Price Index (CPI) for BOTH October and November 

Preliminary estimates for the Jobs report indicate that 35,000 jobs will be created in November, and the employment rate is expected to remain at 4.4%.