The FOMC minutes suggest a wait-and-see viewpoint.
Please consider the Minutes of the December 9–10, 2025 Federal Open Market Committee
Participants observed that overall inflation had moved up through September since earlier in the year and remained somewhat above the Committee’s 2 percent longer-run goal, but more recent inflation data produced by the government were unavailable. Most participants remarked that core inflation had been pushed up by higher tariffs that boosted goods prices, even as some participants noted that housing services inflation had moved down closer to levels seen during previous periods when inflation was near 2 percent. A couple of participants commented that inflation in some nonmarket services categories had been affected by special factors, and thus were unlikely to provide a clear signal about broader inflationary pressures. A majority of participants remarked that overall inflation had been above target for some time and had not moved closer to the 2 percent objective over the past year.
Regarding the outlook for inflation, participants generally expected inflation to remain somewhat elevated in the near term before moving gradually to 2 percent. Many participants emphasized that they expected that the effects of tariffs on core goods inflation would wane, although some expressed uncertainty about when these effects would diminish or the extent to which tariffs would ultimately be passed through to final goods prices. Some participants stated that their business contacts had reported persistent input cost pressures unrelated to tariffs, although several of these participants noted that weaker demand limited the ability of some firms to raise prices or that business productivity gains might enable some firms to manage these cost pressures.
With regard to the labor market, participants observed that labor market conditions had continued to soften and that the unemployment rate had edged up in September. Participants reported relying on private-sector and limited government data, as well as information provided by businesses and community contacts, to assess more recent labor market conditions. Most participants remarked that some of the most recent indicators of labor market conditions, including survey-based measures of job availability or reports of planned layoffs, pointed to continued softening. Some participants noted, however, that other indicators, such as weekly initial unemployment insurance claims and measures of job postings, suggested more stability. Several participants commented that lower-income households were especially concerned about their employment prospects. Participants observed that hiring had remained subdued, and some participants pointed to survey-based measures or reports from business contacts that suggested that current hiring plans remained muted. Participants generally viewed the low dynamism in the labor market as reflecting both lower labor demand amid economic uncertainty or efforts by businesses to contain costs and decreased labor supply associated with lower immigration, the aging of the population, or reduced labor force participation.
Participants generally anticipated that the pace of economic growth would pick up in 2026 and that, in the medium term, economic activity would expand at about the same pace as potential output. Many participants expected growth to be supported by fiscal policy, changes in regulatory policy, or somewhat favorable financial market conditions. Nevertheless, participants judged that uncertainty about their forecast of real GDP growth remained high. Moreover, a number of participants noted that structural factors such as technological progress and higher productivity growth, possibly reflecting increasing use of AI, could boost economic growth without generating price pressures and could also damp job creation. These participants remarked that it could be difficult in real time to determine the extent to which economic conditions reflect such structural factors as opposed to cyclical ones.
In their consideration of monetary policy at this meeting, participants noted that inflation had moved up since earlier in the year and remained somewhat elevated. Participants further noted that available indicators suggested that economic activity had been expanding at a moderate pace. They observed that job gains had slowed this year and that the unemployment rate had edged up through September. Participants assessed that more recent indicators were consistent with these developments. In addition, they judged that downside risks to employment had risen in recent months.
Against this backdrop, most participants supported lowering the target range for the federal funds rate at this meeting, while some preferred to keep the target range unchanged. A few of those who supported lowering the policy rate at this meeting indicated that the decision was finely balanced or that they could have supported keeping the target range unchanged.
Those who favored lowering the target range for the federal funds rate generally judged that such a decision was appropriate because downside risks to employment had increased in recent months and upside risks to inflation had diminished since earlier in 2025 or were little changed. Some of these participants emphasized that lowering the target range for the federal funds rate at this meeting was in line with a forward-looking approach to the pursuit of the Committee’s dual-mandate objectives. These participants noted that reducing the policy rate at this meeting would be consistent with the projected decline in inflation over coming quarters while contributing to a strengthening of economic activity in 2026 that would help stabilize labor market conditions after this year’s cooling. Those who preferred to keep the target range for the federal funds rate unchanged at this meeting expressed concern that progress toward the Committee’s 2 percent inflation objective had stalled in 2025 or indicated that they needed to have more confidence that inflation was being brought down sustainably to the Committee’s objective. These participants also noted that longer-term inflation expectations could rise should inflation not return to 2 percent in a timely manner. Some participants who favored or could have supported keeping the target range unchanged suggested that the arrival of a considerable amount of labor market and inflation data over the coming intermeeting period would be helpful in making judgments on whether a rate reduction was warranted. A few participants judged that lowering the federal funds rate target range at this meeting was not justified because data received over the intermeeting period did not suggest any significant further weakening in the labor market. One participant agreed with the need to move toward a more neutral monetary policy stance but preferred lowering the target range by 1/2 percentage point at this meeting.
In discussing risk-management considerations that could bear on the outlook for monetary policy, participants generally judged that upside risks to inflation remained elevated and that downside risks to employment were elevated and had increased since the middle of 2025.
There is no consensus to reduce rates further at the January meeting. The CME Fedwatch data supports that view.
Looking ahead to March 18 meeting, the odds of a rate cut are slightly better than 50 percent.
No change in 48.7 percent. The probability of a one quarter-point cut at 44.2 percent with a 7.1 percent chance of a half-point cut.
The lack of good data was a huge problem for the Fed. Trump is crowing about the year-over-year CPI data. However, it’s still elevated and the BLS collection was lacking.
In the absence of data collection, the BLS imputed many prices, especially rent at zero.
The next CPI, PCE, and jobs reports will shed more light. But I am still sticking with my view that health care is going to put upward pressure of 1.5 to 2.0 percentage points on the PCE. And the PCE is the Fed’s preferred measure of inflation.
Related Posts
December 8, 2025: Health Care Inflation Bomb Makes the Fed’s 2 Percent Target Almost Impossible
Let’s discuss 2026 health care premiums and what they mean to the Fed’s preferred measure of inflation.
December 26, 2025: How Much Does Health Care Contribute to GDP?
Health care was nearly half of PCE services in Q3. Here’s a breakdown of services.
Mish, and readers. Something pops up in my head when I read about Health Care costs impacting the Target Inflation Rate:
THEY WILL REMOVE HEALTH CARE COSTS.. coming right up.
In other words: the problem is YOU.
The problems with us are including a huge spending surge due to Boomers being older and more sick and prone to Health Care Spending.
Even with the inflationary depression devouring all, keeping the markets inflated is by far the most important duty of the fed.
The problem is the Fed itself and the (((international bankers))) that own and control the Fed and all the other central banks.
Americans and Europeans are as much indentured slaves as the average Somali or Saudi but they think they are kings.
I don’t expect stupid people to save themselves or the world.
2026 is the year SHTF.
Enjoy.
Think where inflation would be if gas prices go up.
Listen to papa dave on the reasons why its low and what could cause it to go higher.
“Several participants commented that lower-income households were especially concerned about their employment prospects.”
This is a hoot! With less illegal immigrants, finding a low wage job is the last thing on the worry list. It’s almost like FOMC members aren’t taking their job/responsibilities seriously, to even put this sentence in the minutes.
They pulled their old cheat notes from under their belts, it said FRUIT OF THE LOOM.
Not as simple as you make it. it depends on if illegals are losing jobs in the general area these people live. What if those jobs pay less than the ones immigrants currently have. Travel distance to said jobs. Hours available matching kids etc. everyone is looking for a gig that matches their needs. Even on the lower end of income If you have a job now finding a new one has a cost in itself. Not a good option when your barely getting by. That can sink you into homeless pretty fast.
There is also an issue with job loss to ai. Think what will happen as all the good smart and motivated white collar employees get the axe. The labor market becomes saturated with smart motivated people hungry for work. Imo i would expect a good chunk of average performers in the work force getting bumped down a level employment wise.
Supposedly, safety nets are supposed to help out here. Maybe not so much anymore though, since tens (hundreds?) of billions of dollars now go to services for illegal immigrants. Many states now have their own funding programs for illegal immigrants in addition to federal dollars. Too bad we can’t/won’t prioritize that money for the working poor.
BTW You’re right, it is complicated:
“Farmers complain that wages, coupled with the transportation and housing costs requirements under the H-2A program, can effectively run pay up as high as $31 an hour.”
https://ipmnewsroom.org/deportations-are-set-to-explode-a-huge-worry-for-farmers-already-facing-a-labor-shortage/
If farmers are paying H-2A Visa holders the *mandated* equivalent of $31/hr, why can’t they offer the same “job package” directly to US citizens?
Mish, you were one of the guys who saw 2008 Great Financial Crisis coming. What do you think of this?
https://www.youtube.com/redirect?event=video_description&redir_token=QUFFLUhqa212cENleVVEN1oyLVF2Ul9QdkxxX0JlR2VrQXxBQ3Jtc0ttMTRzV2RpY0VOby1Gd3NLbnRSZVJralpVUkdlcFNKd2FTZUxZajlVQlJ4ZGVzRk5ORTlKU1B3UTY5b2xldEdTZkxtUFVWd09MV0VaMGtIbjBCLWZ3bTdDU19BTFVUNG5kYlMxaTNxSktkVlltZG91cw&q=https%3A%2F%2Fwww.dcreport.org%2F2025%2F12%2F29%2Fny-fed-unlimited-cash-infusions-bank-crisis%2F&v=c3uepHkwm3Y
The primary prediction of the GFC came from Nouriel Roubini, of Glabal Macroeconomics (at the time). He presented his findings at the WEF and they laughed. However, he identified 10 steps that happened–in the right order, from beginning to the likely bank failures. Fortunes were made by some followers.
Right now, IMHO the risk is derivatives, when the risk hedge becomes very real.
There were a hand full of people (Steve Keen, Michael Hudson and Mish himself) who saw it coming. But no one has realized what the most basic reason why it has cyclically happened since day one of human civilization…except me of course. Its the monopoly monetary paradigm for the creation and distribution of ALL new money known as the applied concept of Debt Only. The word Only designates it as a monopoly concept. Its also the all too human proclivity to egoistically defend an orthodoxy…despite clear signs that a new paradigm concept will resolve the anomalies of the present paradigm and greatly benefit EVERYONE…because thats what paradigm changes DO.
New doesn’t mean better and you haven’t even offered a new solution to anything. People like you (who waste our time and bandwith) are one of the problems.
There are contrary forces at work. As this cost of holding money falls, the demand for money rises (and velocity decreases). Deflation is about to rear its head.
Is that before or after the Fed does massive QE, which it is already doing to save silver (and the 4 quadrillion derivative market )
The feds 2% inflation target is just defining the rate to destruction of the dollar. Congressional mandate is for stable prices, zero inflation. The fed is causing all sorts of economic inefficiency with their violation of their mandate. It is a total waste to be determining much inflation related adjustments such as cost of living changes for government inflation protected benefits or changes to tax brackets or many private sector wages tied to inflation. Much money is spent on future cash flow planning for business or retirement or saving for a home are complicated by inflation considerations. If the fed would just do their job, we would all be better off.
Stable prices Mr. president, not cheap money subsidizing your real estate business.
President Reagan once stated no country ever prospered by trashing its currency. Trashing it at 2% annually is still trashing it.
At 2% inflation, it is a slow train. The real problem is Congress (and Trump) cannot stop spending. At higher interest rates, the cost to finance $38T becomes overwhelming. The US already borrows to pay interest (in theory at least). There is only one solution: print and print and print some more.
Trump’s tax code changes will likely make it much worse. The money will be spent largely outside the US, benefiting China primarily.
We have a classic ‘no win’ situation.
There is another choice, spend less than revenue and I maintain it is the only choice. Print and print and print some more is certain path to destruction or the no win situation as you identify it. I cannot think of a single case where a country has inflated or taxed its way to prosperity or survival.
Your choice, ‘spend less than revenue’ is impossible given the current situation.
BTW, there are other choices that can actually repay the debt, and in doing so bring lower interest rates in the market..
Example:
Divide the federal debt into 20 tranches. Create a VAT to pay 1/20 of the debt every year. After 20 years, the VAT goes away. However, it is only possible if CONGRESS SPENDS LESS THAN REVENUE. To achieve that will require a revolution, hanging enough Congress people on The Mall to change behavior, and tar&feathering the rest.
As I said, “The real problem is Congress (and Trump) cannot stop spending.”
Given an ineffective Congress, the result is hyperinflation, destroying the debt and the currency, and starting over.
Happy New Year
I do not believe your VAT plan works as the first year must not only take the 1/20th but also must pay the current year deficit as there can be no annual reduction in debt without first eliminating the current year deficit. Second, your plan is taxing our way to fiscal sanity, that’s not going to happen as long as there is a deficit as any deficit means the debt is growing, simple math.
The first year of your plan would require about 8% of the total debt or roughly 10% of GDP in VAT taxes added to about 16% of GDP in current revenue. Per FRED, the federal tax revenue has never exceeded 20% of GDP over the last century no matter the tax rates.
The solution to our fiscal mess is to cut spending below revenue. While some small portion of the repair can be increased revenue, clearly spending cuts mut be the bulk. Spending cuts will come voluntarily or forced on us by the market eventually. What cannot be paid will not be paid.
I think the 2 per target is just so the gov can spend without raising taxes. Prices go up 2 percent wages follow etc.
Politicians are responsible for inflation. The can blame the fed or policies from the other party. Dems programs or rep tax cut. Its congresses responsibility to balance the budget even if one party disagrees with said policies.
Trump wants negative interest rates. For a reason. What would that reason be? Oil patch is shutting down. Layoffs up; rigs down. There is a glut of oil. Even at low pump prices, the black fluid is backing up in pipes and tanks. (Good time to steal even more oil from the people of Venezuela. Exxon knows they were stealing it, which is why they don’t want back in. In the intervening years they grew a conscience). Economy stinks. Farmers and ranchers getting bailed out. Manufacturing jobs are shrinking. 4.3% growth? If you believe that, your critical thinking skills suck. They’re screaming about fraud when everybody knows the gigantic fraud is to be found in income tax returns, and they barely have anybody looking at them.
Trump wants near-zero interest rates, which means if inflation is positive, the real rate goes negative. The result is a wealth transfer from ‘savers to borrowers,’ except the negative real rate appears as unseen inflation of certain assets. The rich benefit most
The alternative is market-set rates, while reducing the banks’ credit creation ability–that is, cause a major reset/recession. Unlikely, since it would destroy retirement plans, pension funds, 401ks, PLUS reduce tax collected, and decrease home affordability etc..
As for ‘gigantic fraud is to be found in income tax returns,’ why don’t you spell out provable specifics, not broad generalities. To start…
“Tax fraud contributes significantly to the federal tax gap, with estimates suggesting that about $496 billion was the gross tax gap from 2014 to 2016, which includes unpaid taxes due to fraud and other forms of noncompliance. Specifically, tax evasion by the wealthiest Americans alone accounts for over $150 billion annually.”
Focusing on oil is only a small issue when the problem is global economics..
Inflation up and jobs down, that is, stagflation? At least Carter was regarded as a well meaning, if misguided, man throughout his life.
Carter was ineffectual. Full stop.
It won’t be long before the general public concludes from reading the Fed minutes that a single rate (monetary policy) cannot control both employment and inflation, especially while fiscal policy (borrow and spend) runs in opposition.
That would be great if the people came to that realization. But it seems there is still a long way to go as 99% of voters are still voting for the current way, partly I think because this unsustainable borrowing has created a false sense of normalcy, but good citizenship is caring enough to pay attention to whats going on fiscally, even if things seem relatively good. How long and how much more inflation will it take to get even 5% of voters actually voting against this unsustainable path, and if that time comes, will Americans still even be able to choose their leaders.
I’m not following how tariffs represent a one time increase in inflation. If you apply a 10% tariff to an imported item, as the future price of that item rises, so does the tariff applied to it.
The idea is one and done. It’s plausible, but increases are spread out over time, not all at once.
And it assumes no more tariffs.
But yes, the price hike is permanent.
Fed participants were likely unaware of the open REPO window on Christmas Eve to bail out major banking institutions. So far–in billions, $17 + $34 + $3 (and likely more yesterday/last night. Maybe its just a blip on the radar, or the start of a major coverup.
The Sleeper Issue That Could Destroy the EconomyTrump may have stopped threatening Jerome Powell—but he’s still got designs to control the Fed.
https://www.thebulwark.com/p/the-sleeper-issue-that-could-destroy-the-economy-federal-reserve-trump-powell?utm_medium=email
I think it’s time that we had two inflation rate numbers, the fake CPI which tracks nonsense and the real inflation rate which impacts everyone else.
We should also have two wage systems, one for the fake CPI and one for the real one. Wages should be automatically tethered to the real one.
And then have two banking systems, one for the fake CPI & wages and one for the real one.
Perhaps the one good thing that might come out of Trump taking over the Fed will be that he screws it up so bad, the public will demand it be dismantled.
the new FED chair will bring rates to zero or below zero for their cult leader and fuhrer, our pedotus. all empires crumble.
If they do the bond market will revolt and long term rates will soar. It would crush equities and the economy.