Brace for more dissents from the Fed

December 5, 2025

The Federal Open Market Committee (FOMC) – the policy setting arm of the Federal Reserve - is expected to vote to cut rates another quarter point on December 10^th. That will bring the fed funds target down to a 3.5% to 3.75% range, its lowest level in nearly three years. The vote to cut rates will be accompanied by dissents, likely in both directions.

The one major dove on the Board of Governors, Stephen Miran, who is on leave from his job at the Council of Economic Advisers for the White House until the end of January, is widely expected to vote for a more aggressive one-half percent rate cut.

Hawks are more worried that inflation could linger, especially as monetary and fiscal stimulus combine in early 2026. Expansions to tax cuts mean we will get a record surge in tax refunds during the height of tax season next year. Those gains could cause the rise in inflation to stick, given shifts in trade and immigration policy.

The Fed is scheduled to release its Summary of Economic Projections in December. The dearth of new data due to the government shutdown means that the forecasts will carry less weight than usual. It is hard to determine where the economy is going when we are still attempting to catch up on data on where it has been. Some data for October will be lost forever.

The most important issue is whether the Fed signals a pause or keeps the door open to additional cuts in January. Powell is expected to hedge by saying that each meeting is live. Data on employment and inflation for November do not come out until December 16^th and 18^th, respectively. The data on employment is expected to be extremely weak. We most likely shed jobs on net in October and November.

Employment for December is starting to look a little better, given the late start to the holiday shopping season. We saw a similar phenomenon last year, with much of the hiring that usually occurs in November showing up in December instead. 

Inflation is expected to peak in early 2026 and not fall back to the Fed’s 2% target until the start of 2027. That may not stop the Fed from easing aggressively, especially after Chairman Jay Powell’s tenure lapses in May.

The risk is that inflation lingers as fiscal stimulus due to last year’s expansions to individual tax cuts hit consumer bank accounts. Tax refunds are expected to be up at a double-digit pace in early 2026 from a year ago. Consumers tend to treat them as windfall gains; a good portion will be spent. Vehicles, appliances, consumer electronics and vacations tend to get the largest lift from outsize refund checks.