Fed Split Over December Decision: Focus on Employment or Tackle Rising Prices?

The likelihood of the Federal Reserve lowering interest rates in December has climbed to 67.3%, fueled by ongoing internal policy discussions, recent liquidity infusions, and persistent economic uncertainties. Although Fed policymakers remain split on the appropriate course, their latest moves and public remarks indicate a tilt toward monetary easing, even as they contend with the dual threats of inflation and a possible downturn in the labor market.

Federal Reserve Governor Lisa Cook, who is currently involved in a legal dispute with President Donald Trump regarding her dismissal, highlighted that the potential for a slowdown in employment outweighs inflation concerns. "There is no preset direction for future policy," she stated during a Brookings Institution event, emphasizing that "both elements of our dual mandate—price stability and maximum employment—pose significant risks," as detailed in an

. Her perspective is in line with San Francisco Fed President Mary Daly, who called the recent 25-basis-point rate reduction "the right move" given the softening job market, but also underscored the importance of keeping policy "somewhat restrictive" to manage inflation, according to a .

The Fed's prudent stance is further highlighted by its recent liquidity operations. Over a five-day period, the central bank injected $125 billion into the financial system via overnight repo agreements, with the largest single-day operation of $29.4 billion occurring on October 31, amid shrinking bank reserves. Some analysts have dubbed this move "stealth easing," suggesting that while Fed Chair Jerome Powell maintains a tough public posture, these interventions effectively reduce short-term borrowing costs and loosen credit conditions, as noted in a

. These actions have reinforced market expectations, with the CME FedWatch Tool now indicating a 67.3% probability of a rate cut in December and a 22.3% chance of a larger reduction by January, according to Coin Edition.

Yet, not every Fed official agrees with this direction. Chicago Fed President Austan Goolsbee cautioned that inflation could pick up again next year and urged restraint on further rate cuts. "Inflation has surpassed our target for four and a half years and is trending the wrong way," he told Yahoo Finance, as cited by Asiae. Likewise, Fed Governor Stephen Myron, a strong proponent of aggressive easing, argued that current policy is "overly tight" and advocated for a 50-basis-point cut at each upcoming meeting to stave off recession, another point raised in Asiae's coverage.

This ongoing debate highlights the broader uncertainty facing policymakers. Although the Fed's October rate cut brought the benchmark rate down to 3.75-4.0%, inflation remains above the 2% target, and labor market data points to growing weakness. U.S. manufacturing activity contracted more sharply in November, and the end of corporate hiring freezes signals possible employment stress, according to Morningstar. These factors have left the Fed walking a fine line. "We must keep working to bring inflation down, but not tighten so much that we damage the labor market," Daly warned, as reported by Morningstar.

Market reactions have been varied.

, which often benefits from increased liquidity, dropped 3.4% in the last 24 hours amid market swings, though some analysts believe the Fed's repo operations have historically supported risk assets by boosting sentiment and easing funding, according to Coin Edition. Additionally, the Fed's move to stop balance-sheet runoff on December 1 has been interpreted as a sign that the tightening cycle may be ending, as noted in the same Coin Edition report.

As the December meeting draws near, the Fed's next steps remain uncertain. Krishna Guha of Evercore ISI observed that recent statements from Cook and Daly imply the central bank is "twice as likely to cut rates in December as to hold steady," which matches current market expectations, according to an

. Still, Powell has cautioned, "We shouldn't assume a December rate cut is certain. In reality, we are far from that," a sentiment echoed in Asiae's reporting.