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FOMC staff recommends holding federal funds rate at 3.75–4.0% in December
Summary
Staff advised the Federal Open Market Committee to keep the target federal funds rate at 3.75–4.0% at the December meeting and to maintain the balance-sheet size while reinvesting agency principal into Treasury bills, citing sticky services inflation, tariff pass-through and a resilient economy.
A staff presenter told the Federal Open Market Committee that, when weighing inflation risks against rising signs of labor-market weakness, their recommendation for the December meeting is to hold the target federal funds rate at its current level of 3.75 to 4 percent.
The recommendation, staff said, also calls for maintaining the current size of the Federal Reserve's balance sheet and reinvesting principal payments from agency mortgage-backed securities into Treasury bills. "For the December FOMC meeting, we advise the committee to hold the target FFR at its current level of 3.75 to 4 percent," the staff presenter said.
Why it matters: Staff framed the recommendation around four considerations. First, the risk that inflation becomes persistent is elevated — particularly because core services inflation remains above target and tariff pass-through could sustain price pressures. Second, expansionary fiscal policy and asset-price increases, along with concerns about the Fed's independence, could make expectations more sensitive. Third, the unemployment rate remains near historical lows, and fourth, the costs of re-anchoring inflation expectations are asymmetric and difficult to reverse.
Supporting details: Staff cited recent data showing robust GDP growth (real GDP up about 3.8% annualized in Q2), sticky core services inflation near 3%, and still-elevated median hourly wage growth (about a 4.1% annual rate in August). They also pointed to mixed signals in financial conditions — looser broad indexes alongside elevated mortgage rates and strong equity prices — and singled out tariff-related price pressures as an upside inflation risk.
Balance-sheet guidance: On balance-sheet mechanics, staff recommended maintaining the October decision to stop runoff and to reinvest agency MBS principal into Treasury bills, arguing this approach limits intervention in mortgage markets while keeping balance-sheet size stable.
Next steps: The presentation concluded with committee questions and discussion; no formal committee decision or vote was recorded in the transcript excerpt.
