The Federal Reserve just concluded its meeting, and internal disagreements were much more pronounced than expected. The latest meeting minutes reveal that officials repeatedly debated two issues—whether inflation will rebound again and whether employment can withstand downward pressure. These two questions directly determine the direction of interest rate policy next year.

The official rate cut in December to the 3.50%-3.75% range seemed smooth, but the voting results tell the real story: out of 12 voters, 3 voted against the decision. Powell said at the post-meeting press conference that current interest rates are "just right," but the minutes show that most members are actually caught in the middle—fearing continued weakness in employment while also worried that prices might not be sufficiently contained.

The data differences are quite evident. Official forecasts suggest only one more rate cut by 2026, which sounds conservative. However, the financial markets are not buying it at all; traders are betting there’s over a 50% chance of a rate cut before March, and some aggressive bullish traders are even betting on a large 50 basis point cut in one go.

The real turning points are twofold. The next Federal Reserve meeting on January 27 is particularly critical. Even more important is that Trump is set to announce a new Fed Chair by the end of the month. Currently, the two frontrunners have very different styles—Waller is a former Fed official who advocates for maintaining policy independence, while Haskett is a former Trump advisor who has consistently pushed for more aggressive rate cuts. Changing the leadership could mean a shift in policy approach, potentially leading to a major change in next year’s policy rhythm.

The key question now is: will the new Chair open the floodgates for easing? Will the market’s optimistic expectations for rate cuts be dashed?