December interest rate cut was a close call for some Fed officials, minutes show

By CHRISTOPHER RUGABER, Associated Press

WASHINGTON (AP) — Some Federal Reserve officials who supported cutting a key interest rate earlier this month could have instead backed keeping the rate unchanged, minutes released Tuesday show, underscoring the divisions and uncertainty permeating the central bank.

At their December 9-10 meeting Fed officials agreed to cut their key interest rate by a quarter point for the third time this year, to about 3.6%, the lowest in nearly three years. Yet the move was approved by a 9-3 vote, an unusual level of dissent for a committee that typically works by consensus. Two Fed officials supported keeping the rate unchanged, while one wanted a larger, half-point reduction.

The minutes underscored the deep split on the 19-member policymaking committee over what constitutes the biggest threat to the economy: weak hiring or stubbornly-elevated inflation. If a sluggish job market is the biggest threat, then the Fed would typically cut rates more. But if still-high inflation is the bigger problem, then the Fed would keep rates elevated, or even raise them. Just 12 of the 19 members vote on rate decisions, though all participate in discussions.

The minutes showed that even some Fed officials who supported the rate cut did so with reservations. Some Fed officials wanted to wait for more economic data before making any further moves, the minutes said. Key economic data on jobs, inflation, and growth were delayed by the six-week government shutdown, leaving Fed officials with only outdated information at their meeting earlier this month.

When the Fed reduces its key rate, over time it can lower borrowing costs for homes, cars, and credit cards, though market forces also affect those rates.