Fed cuts 25 bps amid rare three-way dissent — and why the next chair may not be able to deliver more

Summary

The Federal Reserve cut its benchmark rate by 25 basis points on December 10, 2025, but the decision came with unusual internal friction. Three FOMC members dissented — Jeff Schmid of the Kansas City Fed and Austan Goolsbee of the Chicago Fed voted against any cut, while Stephen Myron pushed for a more aggressive 50 basis point reduction. That three-way split is a material signal about where the committee actually stands.

Just two to three weeks before the meeting, fed funds futures implied less than 50% odds of a cut, meaning Jerome Powell appears to have done significant internal lobbying to secure even a 25 bps move. The backdrop explains the difficulty: inflation has drifted higher since the Fed's September meeting and remains above the 2% target, prompting some Wall Street analysts to argue the Fed has effectively adopted a soft target closer to 2.8%. The implicit logic is that tolerating moderately elevated inflation is preferable to allowing unemployment to snowball — a dynamic where modest job losses cascade through consumer spending and into broader layoffs, historically proving difficult to reverse once it accelerates.

Joe Wiesenthal, co-host of Bloomberg's Odd Lots, argues the dissent pattern has direct implications for whoever Trump appoints to replace Powell when his term ends. A more dovish successor would still need to win votes from an FOMC that is already skeptical of further easing. Powell, despite Trump's public frustration with him, has demonstrated the institutional credibility to actually deliver cuts in a resistant committee. A replacement with more aggressive rate preferences but less standing within the FOMC may find it significantly harder to move policy in the direction the administration wants.

There is a second constraint on the rate-cut thesis. The 10-year Treasury yield is the rate that actually moves mortgages, corporate borrowing, and credit card costs — not the overnight Fed funds rate. Aggressive cuts at the short end could reignite inflation expectations, push the 10-year higher, and leave long-duration borrowing costs unchanged or worse. The yield curve dynamic means the administration's preferred policy outcome, materially cheaper credit for the real economy, is not guaranteed even if a dovish chair gets confirmed and pushes through cuts.

On inflation composition, the structural divide remains straightforward. Goods manufactured in China — consumer electronics, TVs — continue to deflate. Services and domestically produced goods, child care, housing, electricity, continue to rise. AI data center buildout is absorbing supply chain capacity across energy and construction, but Wiesenthal views the direct link between data center demand and measured CPI as tenuous at this stage. Electricity prices are rising, but maintenance costs and broader infrastructure spending are larger drivers than data center load growth.

JPMorgan flagged early consumer stress at an investor conference the prior day, noting what Wiesenthal characterizes as potential frailties in spending patterns. He stops short of treating it as a trend, noting that consumer confidence surveys have been deeply negative for five consecutive years while actual spending remained resilient. The JPMorgan signal warrants monitoring given the firm's transaction-level visibility across the economy, but as of mid-December there is limited hard evidence of a consumption deceleration underway.