US Fed minutes show surprise shift as several officials ponder rate hike

WASHINGTON – US Federal Reserve officials appeared surprisingly wary of cutting interest rates when they met in January, with several even suggesting the central bank may need to raise rates if inflation remains stubbornly high.

While the minutes of the Jan 27-28 policy meeting, released on Feb 18, fell far short of suggesting most officials were contemplating rate increases, they made clear the Fed is shifting further away from agreeing on another cut. 

That could put it on a collision course with US President Donald Trump and complicate the task of his nominee for Fed chair, Mr Kevin Warsh. 

Mr Trump has repeatedly said he wants the next Fed chief to deliver lower interest rates, and on Jan 30, two days after the policy meeting, he announced he would nominate Mr Warsh, a former Fed governor, to take over when Mr Jerome Powell’s tenure as chair ends in May.

“The minutes carry a distinctly more hawkish tilt,” Mr Gregory Daco, chief economist at EY-Parthenon, wrote in a note to clients. “This sets up an interesting dynamic if and when Kevin Warsh is confirmed as Fed chair.”

The minutes showed most of the Federal Open Market Committee (FOMC) believed 2025’s labour market weakness, which prompted the central bank to lower rates three times that year, was fading by late January.

“The vast majority of participants judged that downside risks to employment had moderated in recent months while the risk of more persistent inflation remained,” the minutes said. 

That was before the release of a strong January employment report. Moreover, one group of policymakers at the meeting was embracing a view even more hostile to additional rate cuts.

“Several participants cautioned that easing policy further in the context of elevated inflation readings could be misinterpreted as implying diminished policymaker commitment to the 2 per cent inflation objective,” the record showed.

Still, another group of “several officials” remained open to more rate cuts if inflation declined as they expected, though most said inflation progress could be slower than generally forecast.

The FOMC voted 10-2 at its January meeting to hold the benchmark federal funds rate in a range of 3.5 per cent to 3.75 per cent. Governors Christopher Waller and Stephen Miran dissented in favour of a quarter-point reduction.

Officials removed language indicating increased downside risks to employment that had appeared in the three previous statements.

Better data

Numbers published since the Fed’s January meeting have signalled accelerating growth, slowing inflation and a stabilising labour market.

The consumer price index rose modestly in January, restrained by lower energy costs, according to the Bureau of Labor Statistics. An underlying metric known as core CPI, which excludes food and energy, advanced in line with expectations from a month earlier.

Payrolls rose in January by the most in more than a year, and the unemployment rate unexpectedly fell, suggesting the labour market continued to stabilise at the start of 2026. Employers added 130,000 jobs, and the unemployment rate declined to 4.3 per cent, according to the bureau.

Since the January meeting, several Fed policymakers have maintained that an overall stable US economy gives them room to be patient in considering additional rate adjustments.

Mr Trump and other administration officials continue to call for the Fed to lower rates immediately.

In 2026, traders have tempered expectations for the timing of the next rate cut, though Fed funds futures still point to a likely reduction by June. BLOOMBERG