FOMC Minutes Reveal Surprise Shift as Fed Officials Discuss Rate Hikes
The Federal Reserve appeared surprisingly cautious about cutting interest rates during its meeting last month. Minutes from the January 27–28 policy meeting, released Wednesday, show that several officials even suggested the central bank might need to raise rates if inflation remains high.
While the minutes do not suggest a majority yet favors a rate hike, they make it clear that the Fed is moving further away from agreeing on another cut. This shift could create tension with President Donald Trump and complicates the path for his nominee for Fed Chair, Kevin Warsh.
The Conflict Between the Fed and the White House
President Trump has repeatedly called for lower interest rates. On January 30—just two days after this meeting—he announced his plan to nominate Kevin Warsh to replace Jerome Powell when his term ends in May.
“The minutes show a much more ‘hawkish’ or aggressive tone,” wrote Gregory Daco, chief economist at EY-Parthenon. “This creates an interesting situation for Kevin Warsh if he is confirmed as the new Chair.”
White House Spokesman Kush Desai argued that recent data shows inflation is now “cool and stable” due to the administration’s economic policies. He stated it is “high time” for the Fed to acknowledge this and cut rates to help American homebuyers and businesses.
Shifting Views on the Labor Market and Inflation
In late 2025, the Fed lowered rates three times due to a weak labor market. However, by late January, most officials believed that weakness was fading.
The minutes noted that most participants felt the risks to employment had decreased, while the risk of persistent inflation remained a concern. In fact, some officials warned that cutting rates further while inflation is high could make it look like the Fed is no longer committed to its 2% inflation goal.
While a small group of officials remained open to more cuts if inflation drops, most agreed that progress in lowering prices might be slower than expected.
Key Decisions from the January Meeting
The Federal Open Market Committee (FOMC) voted 10–2 to keep the benchmark interest rate between 3.5% and 3.75%.
- The Dissidents: Governors Christopher Waller and Stephen Miran voted against the decision, preferring a quarter-point cut.
- Language Change: Officials removed previous warnings about “downside risks” to employment, signaling more confidence in the job market.
Stronger Economic Data
Since that meeting, new data has shown faster growth and a stabilizing labor market.
- Inflation: The Consumer Price Index (CPI) rose only modestly in January, helped by lower energy costs.
- Jobs: Employers added 130,000 jobs in January—the most in over a year—and the unemployment rate unexpectedly fell to 4.3%.
Because the economy remains stable, several Fed policymakers believe they have the “room to be patient” before making any new rate adjustments. Meanwhile, investors have pushed back their expectations for the next rate cut, though many still hope for one by June.
Finally, the committee unanimously re-elected Jerome Powell as Chair of the FOMC until a successor is chosen in 2027.
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