Will it be difficult to cut interest rates next year? There are “silent objections” within the Federal Reserve, and serious differences among officials affect the prospects for easing

The Zhitong Finance App learned that Federal Reserve Chairman Powell downplayed the opposition to the decision to cut interest rates again on Wednesday, but a series of details of the meeting showed that differences within the Federal Reserve were already very serious. Powell backed up the public debate and forcibly passed a resolution to cut interest rates by 25 basis points. A number of regional Federal Reserve chairmen who participated in discussions but were not members of this year's voting committee also expressed opposition to interest rate cuts. These cracks may indicate difficult problems in 2026, when the new chairman may face greater challenges than Powell in forging consensus at the Federal Reserve.

Only two policymakers — Kansas City Federal Reserve Chairman Jeff Schmid and Chicago Federal Reserve Chairman Austin Goulsby — have officially expressed their opposition and supported keeping interest rates unchanged. Another opponent is Federal Reserve Governor Stephen Milan, who continues to call for more drastic interest rate cuts. The remaining objections were expressed through other channels.

“It's very unusual. I've never seen this happen in my 10 years working for the Federal Reserve,” said Philadelphia Federal Reserve Chairman Patrick Hacker, who retired in June of this year.

In the quarterly interest rate forecast released by the Federal Reserve along with the decision, six policymakers said that the benchmark federal funds rate should remain in the range of 3.75% to 4% by the end of 2025 — the same level as before the rate cut on Wednesday — which indicates their opposition to this rate cut.

Given that many dissenting officials did not have the right to vote at the meeting, some Federal Reserve observers called the 2025 high interest rate forecast a “silent objection.” Huck said, “I would have been one of those who silently opposed it. I think cutting interest rates was a mistake.”

Another clue is hidden in the documents released by the Federal Reserve on Wednesday. In addition to the officials attending the conference, members of the Regional Federal Reserve Bank Committee, composed of business leaders, can also express their opinions. They will submit another short-term interest rate proposal to the Federal Reserve; in reality, this interest rate always fluctuates up and down along with the central bank's main benchmark interest rate. Historically, this recommendation has generally reflected the personal wishes of bank governors. However, this time, only 4 out of 12 regional banks are requesting interest rate cuts, which means that 8 governors may oppose interest rate cuts.

Powell said at a press conference after the meeting that the current economic situation — the inflation rate is still far above the Fed's 2% target, and the labor market is showing signs of weakness — is an inevitable sign of disagreement.

Powell said, “Many participants think the unemployment rate and the risk of inflation are too high, so what should we do? You only have one tool, and it's impossible to do two things at the same time. It's a very difficult situation.”

But since many policymakers are willing to make it clear that they will stick to their opinions through “silent” and formal objections, whoever Trump chooses to replace Powell next year — including the popular candidate for the position, Kevin Hassett, head of the White House National Economic Council — could face the challenge of controlling the Federal Open Market Committee.

Calvin Tse, head of US strategy and economics at BNP Paribas, said, “Chairman Powell has been in office for a long time and has enjoyed great prestige in the Federal Open Market Committee (FOMC). Even under his leadership, there are still three members who disagree, and it's hard for me to imagine which new chairman of the Federal Reserve would be able to more easily obtain the unanimous approval of FOMC members.”

Of course, the resistance faced by the Federal Reserve is not insurmountable. The new data could also change the economic landscape. Although the agency's median forecast points to cut interest rates once in 2026, investors still expect to cut interest rates twice.

In fact, those who voted for this week's interest rate cut may think that the rise in initial jobless claims announced on Thursday confirms to a certain extent their cautious attitude about the weak labor market. According to a report released by the US Department of Labor on Thursday, the number of initial jobless claims increased by 44,000 to 236,000 in the week ending December 6, the highest increase since the outbreak of the epidemic. Although unemployment benefit data has historically fluctuated greatly, given recent layoffs at companies such as Pepsi and Hewlett-Packard, the rise in initial jobless claims may be an early sign of problems in the labor market.

Over the next few weeks, policymakers will receive a wealth of information that will help them understand the state of the labor market and inflation. Although some October data will not be released, policymakers will obtain relevant economic data for November and December before meeting again at the end of January.

Citibank economist Veronica Clark said, “I think it is reasonable that the current differences among officials are reasonable because the data sends conflicting signals, and I think next year's data may play a role in unifying opinions to some extent.”