Fed Minutes Expose Policy Rifts: Rare Split Vote Signals Bumpy Path for Dollar

WASHINGTON — The Federal Reserves latest FOMC minutes have unveiled a central bank deeply divided over the trajectory of US monetary policy. In a rare divergence for the typically consensus-driven body, the committee voted 9-3 to lower the federal funds rate by 25 basis points to a target range of 3.50%-3.75%, marking the most significant internal dissent since 2019.

This breakdown in cohesion suggests that the path toward a “neutral” rate will be far from linear, injecting new volatility into USD crosses as traders reassess the probability of an April follow-up cut.

The Hawkish-Dovish Tug of War

The minutes exposed a three-way fracture within the committee:

This lack of unity complicates the forward guidance for FX markets. The minutes explicitly noted that “future decisions are not on a preset course,” a statement that effectively neutralizes aggressive dovish bets and provides a floor for the Dollar Index (DXY) in the short term.

Balance Sheet and Market Mechanics

Beyond the headline rate, the Fed announced technical adjustments to its balance sheet, initiating “reserve management purchases” of short-term Treasury bills. The committee emphasized this is a plumbing fix to maintain ample reserves—responding to widening money market spreads—rather than a shift in monetary stance. However, liquidity injections traditionally soften currency strength at the margins.

Market Reaction & Outlook

Following the release, the US Dollar corrected lower, with USD/CHF slipping near 0.7910. Markets are currently pricing in a high probability of a pause in January, shifting focus to the April meeting. With voting members rotating in 2026—bringing in hardliners like Cleveland's Hammack and skeptics like Dallas' Logan—the bar for subsequent rate cuts may be higher than Wall Street currently anticipates.