Federal Reserve: Inflation risk tilted to upside, labor market tilted to downside

Steve Liesman (Senior Economics Reporter) 00:00.000

Brian, thank you very much. Ministers of December meeting showed the rate cut that the Fed the 25 base point rate cut was maybe a closer call than it appeared from the vote, which was nine in favor of the cut, two dissenting against it, and one for a 50 basis point cut. The

Steve Liesman (Senior Economics Reporter) 00:14.240

minutes show that a few of those who voted for the cut said they could have supported no change at all, and some wanted to wait for more data. Remember the government was still close was still they were still getting data from from the closed government period there. Inflation

Steve Liesman (Senior Economics Reporter) 00:29.200

risk was seen till to the upside, labor market risk to the downside, and what you're going to hear now is a debate between those two sides who care some care more about inflation, others more about employment. Those supporting the cut set it was in line with forecast for future

Steve Liesman (Senior Economics Reporter) 00:42.520

lower inflation. Now, the committee did appear to agree on the need for future cuts. The debate was about the timing of future cuts. Most judge further rate cuts appropriate if inflation declined over time as expected. Some however wanted to wait, they want to keep rates

Steve Liesman (Senior Economics Reporter) 01:01.000

unchanged, quote, for some time to assess the impact of recent cuts they had already done. Others argue to move to a more neutral policy would help forestall what they were concerned about, a quote, major deterioration in labor market conditions to forestall that. Many saw a low

Steve Liesman (Senior Economics Reporter) 01:15.880

probability that tariffs would lead to persistent inflation. That concern about tariffs was diminishing there. Several were concerned, however, that higher inflation would become entrenched. If it feels like I'm going back and forth, it's because that's the way the minutes read.

Steve Liesman (Senior Economics Reporter) 01:29.000

Many expected tariffs inflation to Wayne, but debated when and by how much. Some saw persistent price pressure, however, unrelated to tariffs. The majority of participants noted that inflation is above target for some time and had not moved closer and some were concerned that

Steve Liesman (Senior Economics Reporter) 01:43.400

the Fed the idea of of the Fed not being at target would become entrenched and the commitment to the 2% target would be undermined by that. The labor market was seen continuing to soften, but stabilizing next year with appropriate policy. Now, this is a couple interesting facts

Steve Liesman (Senior Economics Reporter) 02:00.520

that are we keep talking about on CNBC. When you read the minutes, you see that the Fed itself is seeing this K-shaped economy with strong spending by higher income households, while lower income households are making quote adjustments for inflation. And a number were hopeful

Steve Liesman (Senior Economics Reporter) 02:16.200

that higher productivity, possibly reflecting AI, could boost growth without inflation, however, also dampen job creation. So, Brian, I wish I could be more concise about how the committee felt, but the committee's findings were literally all over the

Brian Sullivan (Anchor) 02:30.000

place, Brian. Yeah, you and I been doing this for a long time, Steve. Normally to your point, I think it's it's pretty concise and clear. Here's how we feel. It does feel the last few months and with these minutes in particular that there we know there's dissent. I mean there's

Brian Sullivan (Anchor) 02:44.480

been dissension literally dissent. But it does feel like it's just a little more loose or a little harder to understand. What's the what am I looking for here?

Steve Liesman (Senior Economics Reporter) 02:57.280

I I think you're hitting it right on the right on the nail right on the head there, Brian. Let's layer in a couple things here. One, we have the government shut down. You had the cut off essentially of official data, the data the federal lies upon. I think that's a backdrop for

Steve Liesman (Senior Economics Reporter) 03:09.840

this whole debate that's probably very important on both sides. You also have this idea that you have these tariffs of uncertain inflation effects that are going to come through. You did have the alternative data showing a weakening in the job market. So, I guess Brian, you

Steve Liesman (Senior Economics Reporter) 03:27.760

remember that phrase? I forget who thought it up. Beth thought me maybe I did. But if you're not confused, you're not paying attention. Well, the Fed is paying attention to all of this and I think collectively they're confused, but some are going to side more on the idea of hey,

Steve Liesman (Senior Economics Reporter) 03:40.800

we need to really worry about the job market and others are saying, you know what, for five years we've been above target, we need to get this inflation problem under control.

Brian Sullivan (Anchor) 03:48.320

And there's going to be people that go after the Fed for being confused. I will actually be a little more gentle. It's near the end of the year, I can be nice, right? Why not? And it's that it is a confusing time with tariffs and in inflation, and AI. We don't know what exactly

Brian Sullivan (Anchor) 04:04.440

is going to happen. And I actually don't blame the Fed. I would rather have them say, "We're not quite sure." versus be like, "We're We're darn sure." And then have it be darn wrong.