Fed Minutes — Key Takeaways
The Fed Minutes from the December 10 meeting were released yesterday afternoon and offered a clearer look at how policymakers are thinking as we head into the new year.
Overall, the tone leaned dovish. Most Fed members indicated they would like to cut rates further if inflation continues to ease along the expected path. That said, a subset of officials favored holding the Fed Funds Rate at current levels for some time, highlighting a still-divided committee.
On inflation, the consensus view was that price pressures would remain somewhat elevated in the near term, before gradually moving back toward the Fed’s 2% target. Importantly, most participants expect tariff-related inflation to fade and continued disinflation in housing to help drive progress. It’s also worth noting that this meeting occurred before the October and November CPI data was released. Those reports showed Core CPI falling from 3.0% to 2.6%, which likely would have contributed to a more optimistic tone had the data been available at the time.
The labor market discussion acknowledged continued softening, with the unemployment rate edging higher in September. However, these comments were also made before the November Jobs Report showed unemployment rising further from 4.4% to 4.6%. With that data in hand, the Fed’s assessment of labor conditions may have been even more cautious.
Most members pointed to survey data—such as job availability and planned layoffs—as evidence that labor market conditions are weakening. A minority noted that weekly jobless claims and job postings still suggest some stability.
Even so, the broader concern was clear: risks to the labor market are skewed to the downside. Several officials warned that in today’s low-hire, low-fire environment, a sudden increase in layoffs could push the unemployment rate materially higher. Others highlighted that recent job growth has been concentrated in sectors that are not economically sensitive—primarily healthcare and education—masking weakness elsewhere in the economy.
Balance Sheet & Liquidity
On the balance sheet, the Fed explained that it began purchasing $40 billion per month in Treasury Bills due to declining reserves and liquidity concerns. While these purchases are expected to taper, the minutes suggest the Fed could buy roughly $220 billion in the first year, which is still meaningful.
While short-term Bill purchases don’t directly impact long-term rates, there’s an important nuance. If Treasury issuance shifts toward shorter maturities—resulting in less long-term debt being issued—while the Fed remains a buyer, it could help relieve pressure on longer-term yields over time.
Bottom Line
The minutes paint a picture of a somewhat divided Fed, but the dominant themes are clear: inflation is expected to continue cooling, and the labor market faces growing downside risk. Combined with a more dovish Fed leadership and voting makeup next year, this backdrop continues to support the case for additional rate cuts.
Jobless Claims
Initial Jobless Claims, which track first-time filings for unemployment benefits, fell 16,000 to 199,000 last week. While that number is low, it’s not particularly informative this time of year. Employers typically avoid layoffs around the holidays, and this report is historically skewed lower during Christmas weeks.
Continuing Claims declined by 47,000 to 1.886 million. While that’s an improvement from the recent readings above 1.9 million, seasonal effects may again be at play. Additionally, looking back 26 weeks shows a surge in initial claims at that time. Since benefits in many states expire after 26 weeks, some of this decline may simply reflect claims rolling off rather than improved hiring conditions.