Should the Google Analytics utm_medium from Facebook Ads be cpc or display?

If you use utm_medium cpc, the traffic will get bucketed into the Paid Search channel in GA.

If you use utm_medium cpm or display, then that traffic will get bucketed into the Display Channel in GA.

As per your observation, to me, it would make more sense to have it go into the Display Channel, or alternatively I would edit the default channel grouping (or create a new channel grouping) and add a new channel for Facebook ads.. however I would still use utm_medium cpm or display to make it clear that it is display, not search based ads.