Fed Officials Warn of Inflation Risks Amid Rising Oil Prices

Fed Dissent Grows: Goolsbee and Schmid Oppose December Rate Cut

The Federal Open Market Committee (FOMC) recently moved forward with a quarter-point interest rate cut in December, but the decision was not unanimous. In a 9-3 vote, the committee lowered borrowing costs by 25 basis points, though Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeff Schmid broke with the majority to argue for holding rates steady.

This dissent highlights a growing divide within the central bank regarding the pace of easing and the persistence of inflationary pressures. While mortgage markets welcomed the reduction in costs, the dissenting officials warned that the Fed might be getting ahead of the economic data.

The Case Against the December Cut

Both Schmid and Goolsbee cited stubborn inflation and solid economic momentum as the primary drivers for their opposition. Their concerns center on the risk of cutting rates too aggressively before inflation is fully anchored.

• Jeff Schmid’s Position: Schmid argued that inflation remains too high and that the economy continues to show strong momentum. In his assessment, the current monetary policy stance is only “modestly, if at all, restrictive.” He expressed a preference to leave the target range for the policy rate unchanged, citing the need to maintain credibility in anchoring inflation expectations.
• Austan Goolsbee’s Position: Goolsbee’s dissent was rooted in a desire for more data. He suggested that waiting for additional evidence would have been a more prudent approach before committing to another rate cut.

Market Risks and Long-Term Yields

Jeff Schmid warned that complacency regarding inflation could have direct consequences for the broader financial markets. He noted that uncertainty surrounding inflation could push long-term yields higher, which would filter directly into government bond and mortgage pricing.

Schmid referenced the ideal established by former Fed Chair Alan Greenspan, where inflation is so low and stable that it no longer materially enters the decision-making processes of firms and households. According to Schmid, maintaining this level of credibility is essential to prevent market volatility.

Political Pressure and Future Outlook

The Fed’s decision has drawn sharp criticism from President Donald Trump, who attacked Chair Jerome Powell and signaled that his future choice to lead the central bank would push for more aggressive easing.

Looking toward 2026, neither Goolsbee nor Schmid will be voting members of the FOMC. However, both officials have signaled that they expect more easing in the coming year than the central bank’s official projections currently imply.

Historical Context: Shifting Perspectives

The hesitation seen in December follows a period of evolving concerns among Fed officials. In September 2025, Jeff Schmid had supported a 25 basis point cut, describing it as a “risk management move.” At that time, his primary concern was that inflation might move back toward 3% rather than the Fed’s 2% target, fearing that premature cuts could ignite demand. Similarly, Austan Goolsbee had expressed uncertainty regarding further cuts in late 2025, citing weak payroll growth.

Key Takeaways: December FOMC Dissent