Several Federal Reserve officials anticipate further interest rate cuts if inflation were to drop, while others see holding rates for “some time,” according to minutes of the central bank’s January policy meeting released Wednesday.
“Several 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 minutes read.
Still others thought that more rate cuts may not be needed until there’s a clear indication that inflation is falling and “firmly back on track.”
Several members indicated that they would have supported a two-sided description of the Fed’s future interest rate decisions that would reflect the possibility that raising rates could be appropriate if inflation remains above the central bank’s 2% target.
After the January meeting, in which Fed officials held rates steady following three consecutive cuts at the end of 2025, the policy statement read: “In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”
According to the minutes, most Fed officials cautioned that progress toward their 2% inflation goal might be slower and more uneven than expected and that the risk of inflation running “persistently” above 2% was “meaningful.”
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Several cautioned that cutting rates further in the context of elevated inflation could be misinterpreted as signaling a weaker commitment to the 2% inflation goal, potentially further entrenching inflation.
Several members also raised the possibility that higher demand could keep inflation elevated.
When it comes to the job market, the “vast majority” believe that the labor market is showing some signs of stabilization and that downside risks have diminished, but most also said they weren’t gone altogether.
“The vast majority of participants judged that downside risks to employment had moderated in recent months while the risk of more persistent inflation remained, and some commented that those risks had come into better balance,” the minutes read.
Several officials also commented on what they saw as high asset valuations, while some discussed potential vulnerabilities associated with recent developments in the AI sector, including elevated stock market valuations.