Federal Reserve policymakers signaled patience on rate cuts and warned hikes remain possible if inflation stays high, according to minutes from the January meeting.

Officials at the Federal Reserve agreed to keep rates steady at 3.5% to 3.75%, reflecting growing confidence in economic resilience and a stabilizing labor market. Still, the discussion revealed clear divisions inside the central bank.

Key Takeaways

  • Split outlook: Some officials support cuts later this year if inflation cools. Others want rates held steady until disinflation is clearly back on track.
  • Hikes still possible: Several policymakers said future statements should reflect a two-way policy path, meaning increases could happen if inflation stays above target.
  • Labor market steadier: Most participants said risks to employment have diminished, though a few warned demand could still weaken quickly.
  • Inflation concerns persist: Many warned price pressures may fall more slowly and unevenly than expected, keeping risks elevated.

Jerome Powell emphasized after the meeting that the central bank is “well positioned” and will decide policy meeting by meeting, not on a preset path. He also noted that rate hikes are not the base case.

Internal Policy Divide

Two governors, Christopher Waller and Stephen Miran, dissented in favor of another cut, arguing the labor market still needs support. Meanwhile regional bank leaders such as Lorie Logan and Beth Hammack have publicly backed holding rates due to inflation risks.

Leadership Transition Adds Uncertainty

Powell’s term ends in May, and President Trump has nominated Kevin Warsh to replace him. Markets expect Warsh could favor lower rates, though timing remains unclear.

Market Expectations

Futures tracked by CME Group currently point to the first potential cut around midyear, assuming inflation moderates.

The Fed is not rushing to ease policy. Officials want clearer proof inflation is under control before cutting again, and some are keeping rate hikes on the table if price pressures refuse to fade.

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