At their January meeting, Federal Reserve officials demonstrated a division in views, indicating that additional interest rate cuts should be put on hold. Future cuts could resume later this year, contingent upon inflation aligning with expectations.
While the decision to maintain the central bank's benchmark rate was broadly accepted, the outlook remains uncertain as members are split between countering inflation and supporting employment, according to minutes from the Jan. 27-28 Federal Open Market Committee meeting.
"In considering the outlook for monetary policy, several participants commented that further downward adjustments to the target range for the federal funds rate would likely be appropriate if inflation were to decline in line with their expectations," the meeting summary stated.
However, there was disagreement among participants about future policy directions, with debates centering on whether to prioritize inflation management or labor market support.
"Some participants commented that it would likely be appropriate to hold the policy rate steady for some time as the Committee carefully assesses incoming data, and a number of these participants judged that additional policy easing may not be warranted until there was clear indication that the progress of disinflation was firmly back on track," the minutes detailed.
Additionally, some participants considered the possibility of rate hikes, advocating for the post-meeting statement to better reflect the potential for upward rate adjustments if inflation remains above target.
This would include "the possibility that upward adjustments to the target range for the federal funds rate could be appropriate if inflation remains at above-target levels."
The Federal Reserve had previously reduced its benchmark borrowing rate by three-quarters of a percentage point through sequential cuts in September, October, and December, leading to a key rate range between 3.5%-3.75%.
The meeting was the first featuring a new lineup of regional presidents, including Lorie Logan of Dallas and Beth Hammack of Cleveland, who have both voiced support for indefinitely pausing rate changes, underscoring inflation as a persistent concern.
With the Fed already divided along ideological lines, tensions could grow further if former Governor Kevin Warsh is confirmed as the next central bank chair. Warsh favors lower rates, a view shared by current Governors Stephen Miran and Christopher Waller, both of whom opposed the January decision, advocating for a quarter-point cut. Chair Jerome Powell's term concludes in May.
The minutes do not disclose individual participants but describe opinions using terms like "some," "a few," "many," and include two unusual mentions of "a vast majority."
Participants generally anticipate a decline in inflation over the year, albeit uncertain in pace and timing. They noted that tariffs have influenced prices but expect this effect to diminish over time.
"Most participants, however, cautioned that progress toward the Committee's 2 percent objective might be slower and more uneven than generally expected, with the risk of inflation persistently exceeding the Committee's objective deemed significant," the document reported.
At the meeting, the FOMC adjusted its post-meeting statement language, reflecting a more balanced view of inflation and labor market risks, downplaying previous employment concerns.
Since the meeting, labor statistics have presented mixed results, indicating a slowdown in private sector job creation and weak growth.