Overview
The Federal Reserve cut rates by 25 basis points on December 10, 2025, but the 9-3 vote was the most divided decision in nearly four decades. Three officials broke ranks: Stephen Miran wanted a 50-basis-point cut, while Austan Goolsbee and Jeffrey Schmid wanted no cut at all. The minutes released December 30 reveal just how fractured the Committee has become—even some who voted for the cut called it "finely balanced" and said they could have supported no change at all. Some participants explicitly stated rates should stay unchanged "for some time" after this cut.
This isn't normal Fed disagreement—it's the kind of internal warfare that last surfaced during the Volcker era. At stake: whether the Fed declares victory too soon and repeats the catastrophic mistakes of the 1970s, or whether it keeps rates too high as unemployment climbs to 4.6%, the highest since September 2021. Powell called it a "close call." The minutes show he wasn't exaggerating—the Fed is genuinely split on whether inflation or recession poses the bigger threat.
Key Indicators
People Involved
Organizations Involved
The central bank of the United States, responsible for monetary policy, financial stability, and banking supervision.
The Fed's monetary policymaking body, consisting of 12 voting members who set interest rates.
Timeline
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Minutes Reveal "Finely Balanced" Decision
DisclosureReleased FOMC minutes show even some who voted for the rate cut called it "finely balanced" and could have supported no change. Some participants stated rates should stay unchanged "for some time" going forward.
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FOMC Minutes Released
DisclosureMinutes from December 9-10 meeting expected to reveal internal debates over inflation risks versus growth concerns.
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Dot Plot Slashes 2026 Cut Expectations
ProjectionFed officials project just one 2026 rate cut, down from three or four expected weeks earlier.
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Three-Dissent Vote Exposes Deep Divisions
Monetary PolicyFOMC cuts 25bp to 3.5-3.75% in 9-3 vote. Miran wants 50bp cut; Goolsbee and Schmid want no cut. Powell calls it a "close call."
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Second Rate Cut, First Dissent
Monetary PolicyFed cuts another 25bp to 3.75-4%. Kansas City's Schmid dissents, preferring no change.
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Fed Cuts Rates for First Time
Monetary PolicyFOMC cuts 25bp to 4-4.25% range, marking policy reversal after 14-month pause.
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Stephen Miran Joins Fed Board
LeadershipSenate confirms Miran 48-47 along party lines; he also chairs Trump's Council of Economic Advisers.
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Final Rate Hike to 22-Year High
Monetary PolicyFed completes 11th hike, bringing rates to 5.25-5.5%, highest since 2001.
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First 75-Basis-Point Hike
Monetary PolicyFed delivers largest single increase since 1994 as inflation peaks at 9.1%.
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Fed Begins Historic Rate Hiking Cycle
Monetary PolicyFOMC raises rates 25 basis points as PCE inflation hits 6.4%, marking first hike since 2018.
Scenarios
The 1970s Redux: Fed Pauses Too Soon, Inflation Explodes
Discussed by: Atlanta Fed President Raphael Bostic, inflation hawks on FOMC, financial press comparing current divisions to Arthur Burns era
The tariff shock proves larger than expected, driving core PCE back above 3.5% by mid-2026. The Fed's premature rate cuts—made before inflation was truly conquered—allow price expectations to drift upward. Powell's successor (term begins May 2026) faces the choice Burns failed: restart painful rate hikes or accept entrenched inflation. Markets revolt, long-term yields spike, and the Fed loses credibility. This is the nightmare keeping Goolsbee and Schmid up at night—the exact mistake that led to Volcker's brutal 1980s recession.
The Immaculate Soft Landing: Growth Survives, Inflation Dies
Discussed by: Optimistic Wall Street strategists, Brookings Institution economists tracking soft landing probabilities
Tariff impacts prove transitory and don't bleed into wage expectations. Inflation drifts back toward 2% by late 2026 as productivity gains from AI offset cost pressures. The Fed completes two more cuts in 2026, bringing rates to 3%, and the economy avoids recession entirely. Unemployment stays below 4.5%, GDP growth holds at 2%, and Powell's cautious approach is vindicated. This would be the first time in postwar history the Fed tamed inflation without triggering a recession—a genuine policy triumph.
Policy Paralysis: Fed Freezes, Economy Stalls
Discussed by: Stephen Miran's dissents, economists warning Fed is "behind the curve," analysts tracking leadership transition risks
Internal divisions freeze the FOMC. With three members wanting faster cuts, three wanting none, and the rest uncertain, the Fed holds rates at 3.5-3.75% through all of 2026. But the economy needed lower rates—consumer spending craters, unemployment jumps to 5.5%, and the Fed faces criticism for strangling a recovery. Powell's May 2026 departure mid-crisis creates a leadership vacuum. The Fed eventually cuts aggressively in late 2026, but the damage is done: a shallow recession that could have been avoided.
Stagflation Trap: The Worst of Both Worlds
Discussed by: Fed research papers modeling stagflation probability, JPMorgan economists analyzing tariff passthrough, comparison to 1970s energy shocks
Tariffs act like 1970s oil shocks: they simultaneously boost inflation and crush growth. Core PCE stays above 3% while GDP growth drops to 1% and unemployment rises to 5%. The Fed faces an impossible choice—its dual mandate moves in opposite directions. Cut rates to help growth and risk embedding inflation, or hold tight and accept recession. Fed research showed stagflation probability near 30% in late 2022, dropped through 2024, then spiked again in mid-2025 on tariff fears. This scenario makes Powell's job unsolvable.
Historical Context
The Great Inflation and Arthur Burns' Fatal Pause (1965-1982)
1965-1982What Happened
Fed Chair Arthur Burns hiked rates dramatically in 1972-74 as inflation surged, then reversed course and cut rates as recession hit. Inflation never fully died—it roared back worse. Burns repeated the stop-go pattern multiple times, never sustaining tightening long enough to break inflation psychology. By 1979, inflation hit double digits and Burns was out. Economists now view this as the Fed's greatest failure: declaring victory before inflation was vanquished.
Outcome
Short term: Inflation persisted through the 1970s, spiking above 10% twice while unemployment also rose—stagflation.
Long term: Paul Volcker replaced Burns in 1979, hiked rates above 19%, triggered back-to-back recessions, and finally killed inflation by 1983. Unemployment hit 10%. It took brutal medicine to undo Burns' mistakes.
Why It's Relevant
Goolsbee and Schmid's dissents echo the lesson: cutting rates before inflation is fully defeated risks repeating the 1970s catastrophe. The three-dissent vote shows some Fed officials fear Powell is making Burns' mistake.
The 1986 Revolt Against Volcker
1986What Happened
Even legendary Fed Chair Paul Volcker faced internal rebellion. In 1986, the Fed Board outvoted Volcker on a rate cut, nearly prompting his resignation. The incident demonstrated that even the most respected Fed chair can lose control when Committee members hold fundamentally different economic views. Volcker had crushed inflation but faced enormous political pressure and internal dissent over keeping rates high.
Outcome
Short term: Volcker nearly resigned but stayed on briefly before leaving in 1987, succeeded by Alan Greenspan.
Long term: Inflation stayed conquered through the 1990s and 2000s—the "Great Moderation" era—validating Volcker's tight money approach.
Why It's Relevant
The December 2025 three-dissent vote represents the most divided FOMC since Volcker's era. History shows even successful Fed chairs face revolts when policy stakes are high and economic views diverge sharply.
The Yellen Dissent Era (2014-2016)
2014-2016What Happened
Under Fed Chair Janet Yellen, FOMC members dissented 7.7% of the time—the highest rate since Volcker. Regional Fed presidents pushed for faster rate hikes while Yellen advocated patience as the economy recovered from the 2008 crisis. The divisions reflected genuine uncertainty about whether low unemployment would trigger inflation. Yellen's gradual approach ultimately proved correct—inflation stayed subdued.
Outcome
Short term: Yellen raised rates slowly from 2015-2018, dissents gradually faded as economic data validated her approach.
Long term: The gradual hiking cycle proved too slow—some economists argue it contributed to asset bubbles and left the Fed unprepared for future shocks.
Why It's Relevant
Current dissent levels exceed even Yellen's fractious era. The parallel: both periods featured fundamental uncertainty about inflation dynamics and appropriate policy speed. But today's stakes are higher—inflation is real, not theoretical.