Fed minutes show deep divide over rate cuts
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Federal Reserve chair Jerome Powell speaks during a press conference last month. Photo: Saul Loeb/AFP via Getty Images
Federal Reserve officials appear deeply divided over interest rates, with several suggesting the possibility of higher borrowing costs if inflation remains stubborn, according to policy meeting minutes released on Wednesday.
Why it matters: Officials are split over how weak the labor market is and whether businesses will continue to pass along tariff-related costs to consumers.
- The result is a muddled outlook about the path ahead for rates as President Trump's pick to lead the Fed takes over in the months ahead.
What they're saying: The minutes from the Fed's Jan. 27-28 meeting suggest that officials were divided across a few different camps for future rate decisions.
- Support further rate cuts: "Several participants commented that further downward adjustments to the federal funds rate would likely be appropriate if inflation were to decline in line with their expectations," according to the minutes.
- Hold rates steady: "Some participants," meanwhile, said that rates should stay on hold "for some time" as the Fed assesses incoming economic data. "A number of these officials" said lowering interest rates further "may not be warranted until there was clear indication" that the inflation cooling process was back on track.
- Keep rate increases on the table: "Several" Fed officials said that they would have supported a "two-sided" description of future rate decisions, "reflecting the possibility that upward adjustments ... could be appropriate if inflation remains at above-target levels."
Where it stands: The Fed kept rates on hold last month after a string of rate cuts in late 2025. Fed chair Jerome Powell signaled that the labor market appeared to be stabilizing.
- But two Fed governors dissented against that decision, preferring to lower interest rates. That included Christopher Waller, who later, in a statement, warned about the risk of future labor market deterioration.
- "The vast majority of participants judged that labor market conditions had been showing some signs of stabilization and that downside risks to the labor market had diminished," the minutes said.
- But some Fed officials also raised the possibility "that a further fall in labor demand could push the unemployment rate sharply higher in a low-hiring environment."
The big picture: There were also mixed anecdotes about how businesses were navigating tariff-related price increases.
- "Several" Fed officials anticipated that higher productivity gains from AI-related technologies would put downward pressure on inflation, reducing the need that businesses will pass on costs to consumers.
- But "most participants" worried that progress toward the Fed's 2% inflation target might be slower than expected, with some citing reports from businesses who anticipated raising prices in 2026 to cope with costs, including those related to tariffs.
The intrigue: More recent economic data since the Fed's policy meeting offers good news on both jobs and inflation.
- Hiring surged by 130,000 jobs alongside a lower unemployment rate in January.
- The Consumer Price Index rose 2.4% in the year ending in January, ticking down from the 2.7% reading the prior month.
What to watch: In the days following last month's FOMC meeting, Trump announced that he would nominate former Fed governor Kevin Warsh as Powell's successor.
- Powell's term ends on May 23. If Warsh is confirmed in a timely manner —which is not guaranteed — Powell has just two more FOMC meetings before he steps down as the nation's top central banker.
