The Federal Reserve announced a 25 basis point rate cut at the December 10th FOMC meeting, bringing the federal funds rate target range to 3.50%-3.75%. At first glance, it seems like a routine move, but the story behind it is much more complex.

Powell's post-meeting statement is worth noting—he explicitly said that a rate hike is unlikely in the next step. This statement sounds easing, but in fact it poured cold water on the market. Because the Federal Open Market Committee's forecast shows that there might be only one more rate cut throughout 2026. The aggressive easing environment investors previously expected is basically not coming.

Currently, there is an unusual split within the Federal Reserve. The root of the issue lies in two statutory goals—full employment and price stability—that are now experiencing a rare direct conflict since the 1970s.

Three factions emerged during the meeting:

The majority supports a 25 basis point rate cut, citing a somewhat sluggish labor market. But Chicago Fed President Goolsbee and Kansas City Fed President Schembri disagree, issuing a stern warning: they believe rates should stay steady and not be cut, as inflation risks are greater. These people are called "hawks," and their stance is very firm.

On the other side is Fed Governor Mester. She believes 25 basis points are not enough and advocates for a 50 basis point cut. Why? Because she is more worried about a collapse in employment.

There are two main reasons for these disagreements. First, there are differing views on inflation. This year's tariffs did indeed trigger inflation expectations, but the actual impact was milder than expected. This leads some to think there's no need for such aggressive rate cuts.

Another deep divide is the vastly different assessments of the current economic fundamentals. Some see weakness in employment, others see weakness in inflation. Both rely on real data but arrive at completely opposite conclusions.

For traders, this internal division is actually a signal—The Fed no longer has a unified direction. This means the next policy move could easily shift, and the market needs to pay closer attention to economic data changes.