Fed Minutes Expose Policy Rift: 'Stop-and-Go' Strategy Clouds 2026 Dollar Outlook

The release of the Federal Reserve's December meeting minutes has shattered the market's consensus on a smooth easing cycle, revealing a central bank deeply divided on the path forward. With a split vote of 9-3 favoring a cut, the dissent is at its highest level since 2019, signaling that the “Fed Put” is no longer a guarantee.

The 'Stop-and-Go' Reality

The minutes describe the policy balance as “very delicate,” effectively ushering in a “stop-and-go” era where rate cuts will be intermittent and highly data-dependent rather than continuous.

Philadelphia Fed President Paulson reinforced this cautious tone, suggesting that rate cuts in late 2026 would only be appropriate if conditions deteriorate further than expected. This hesitation contradicts the aggressive easing priced into interest rate futures.

Impact on the Greenback

The US Dollar Index (DXY) finds itself in a tug-of-war.

1. Bullish Drivers: The Fed's reluctance to commit to a preset easing path and robust safe-haven demand from the Venezuela crisis support the USD.

2. Bearish Headwinds: Slowing manufacturing data and the “structural decline” narrative pushed by de-dollarization advocates cap the upside.

EUR/USD and GBP/USD traders should anticipate chop. The clear divergence rests with the JPY, where the US-Japan yield spread may not narrow as fast as bears hope, potentially keeping USD/JPY supported above key supports despite BOJ hawkishness.