Fed Policymakers Discussed Pausing Rate Cuts After December Meeting

Federal Reserve policymakers discussed pausing further interest rate cuts in 2026 during their latest meeting to set interest rate policy, according to newly released minutes.

The minutes state that during the December meeting, "some participants suggested that, under their economic outlooks, it would likely be appropriate to keep the target range unchanged for some time after a lowering of the range at this meeting."

At the meeting on Dec. 9 and 10, Fed Chair Jerome Powell joined the 9-3 majority on the Federal Open Market Committee to vote for the quarter-point rate cut, taking the rate to a range of 3.5% to 3.75%.

However, Kansas City Fed President Jeffrey Schmid and Chicago Fed President Austan Goolsbee voted to hold rates steady, after voicing concerns about renewed inflation. Fed Gov. Stephen Miran also dissented, but voted in favor of a larger half-point cut.

The minutes reveal that some of those who voted in favor of a December rate cut were on the fence, indicating that decision may have been much closer than the final vote tally suggested.

"A few of those who supported lowering the policy rate at this meeting indicated that the decision was finely balanced or that they could have supported keeping the target range unchanged," the minutes said.

The FOMC will next vote on interest rate policy on Jan. 28. Financial and prediction markets expect the panel to leave its policy rate unchanged at that meeting, with Polymarket indicating an 86% chance of no change.

Bond markets expect to see only two rate cuts from the Fed in 2026, and don't believe the first cut is likely to arrive before late April, according to CME FedWatch.

"The Federal Reserve is being cautious about rate cuts in an attempt to keep inflation from running amok," says Realtor.com® senior economist Joel Berner. "It appears unlikely that the central bank will lower the target rate further in January, despite the weak jobs numbers."

The growing sense that the Fed will pause rate cuts until the spring has reignited the fury of President Donald Trump, who has pushed for lower rates to reduce government borrowing costs and boost the housing market.

Speaking to reporters Monday, Trump revived his threat to fire or sue Powell, accusing the Fed chair of "gross incompetence."

"We’re thinking about bringing a suit against Powell for incompetence,” Trump said, referring to allegations of cost overruns in the renovations of the Fed's headquarters. "The guy’s just incompetent. There’s nothing you can do about it.”

Powell's term will expire in May, and Trump has said he will announce his nominee to fill the role in the coming weeks.

The new year will also bring a rotation of new FOMC voters, with four new regional Fed presidents gaining a vote on the panel.

While inflation hawks Schmid and Goolsbee will lose their votes in the new year, they will be replaced by several new rate-cut skeptics, including Cleveland Fed President Beth Hammack.

Hammack recently told The Wall Street Journal that she would prefer to hold rates steady until the spring, and is expected to lead the faction urging caution about cutting rates too far or too quickly.

The Fed uses higher interest rates to fight inflation and lower rates to stimulate the labor market, in line with its dual mandate of price stability and maximum employment.

Fed officials see housing market stabilizing

The newly released minutes also note that several FOMC members see signs of stability in the housing market due to recent easing of mortgage rates.

"A couple of participants remarked that the housing sector showed some signs of stabilizing and that recent declines in mortgage rates would provide support to the sector," the minutes said.

That's a shift from the September FOMC meeting, when the minutes noted that "several participants noted continued weakness in the housing market" with a couple raising the possibility of "substantial deterioration in the housing market."

The Fed does not control mortgage rates, and instead sets the short-term rates used for overnight lending between commercial banks. Still, mortgage rates can respond to expectations about future Fed policy.

Mortgage rates have hovered close to 6.2% since late October, after hitting 7% in January and spending the first six months of the year above 6.6%, according to Freddie Mac.

Amid the lower rates, home sales have seen modest gains, with existing-home sales rising 1.2% in October and ticking up 0.5% in November.

Still, 2025 remains on track to hit a 30-year low for home sales, with existing-home sales volume expected to be the lowest since 1995.