The Federal Reserve's interest rate meeting at the end of 2025 caused some stir. For the third consecutive time, they cut interest rates by 25 basis points, bringing the federal funds rate down to 3.50%–3.75%. This in itself was no surprise—the market had already anticipated it. But once the meeting minutes were released, internal disagreements became evident. In the December vote, there were three dissenting votes, the first since 2019.

The dissenting directors each had their own reasons. Some felt that a 25 basis point cut was too conservative and that a 50 basis point cut was warranted. On the other side, the hawks were more aggressive, directly calling for maintaining the current stance and not cutting at all. One wanted to cut faster, while another didn’t want to cut at all. This "everyone is not aggressive enough" situation clearly indicates that the Fed itself has not yet decided on its policy direction for 2026.

Even more interesting was the Fed’s dot plot. The 19 officials each had their own projections, with no consensus. The median forecast for the 2026 interest rate was 3.4%, suggesting only one rate cut throughout the year. But individual forecasts varied wildly—eight officials advocated for more than one rate cut, with some even projecting rates as low as 2%; another seven suggested pausing, with three of them even considering rate hikes. This extreme divergence actually reflects the Fed’s concerns about the economic outlook.

Atlanta Fed President Bostic even made a harsh statement: if the U.S. economy maintains a 2.5% growth rate, there might be no rate cuts at all in 2026. But what does the market think? Futures traders are betting on a different story—they expect the end-of-year interest rate to fall to 2.75%–3.0%, which is 1.25 percentage points lower than the current level.

Where is the core issue? It’s still about balancing inflation and employment. The core PCE inflation rate has decreased, returning from a high level to 2.8%, but this is still above the 2% target. This is the fundamental reason why the Fed remains caught in a dilemma.