WASHINGTON — Officials from the Federal Reserve convened last month and identified escalating risks regarding inflation, prompting them to maintain the current benchmark interest rate.
The minutes from the January 28-29 meeting, released on Wednesday, highlighted that potential factors like President Trump’s proposed tariffs, large-scale immigration enforcement, alongside robust consumer spending, could contribute to inflationary pressures in the coming year.
The group of 19 Fed officials involved in interest rate decisions expressed that more substantial progress on inflation would be necessary before they consider making further reductions. Consequently, the Fed’s key rate remains at 4.3%, following a decrease from a two-decade peak of 5.3% late last year. This decision means that borrowing costs for consumers — including on mortgages, auto loans, and credit cards — are unlikely to decrease soon.
Recently released government data indicated that inflation may be worsening, leading many economists to project only a single rate cut, if any occurs, in 2023. The Labor Department reported a 3% rise in consumer prices in January year-over-year, up from a three-and-a-half-year low of 2.4% recorded last September. However, the Federal Reserve primarily tracks a separate inflation measure that currently estimates inflation to be closer to 2.5%.
Additionally, the minutes referenced a “high degree of uncertainty” prominent in the economy, advising the Fed to adopt a “careful approach” regarding possible adjustments to the key interest rate.
Support for maintaining the key rate steady came unanimously from all Fed policymakers during last month’s meeting, according to the minutes. This consensus follows indications of growing divisions in the past few months between those advocating for further rate reductions and those expressing concerns over persistent inflation.
A significant point of interest for Wall Street is the duration of the Fed’s current pause on rate cuts. Investors on Wall Street are predicting that the central bank won’t make any cuts before July, with no anticipated additional reductions until 2026.
Many Federal Reserve officials are closely monitoring the effects of Trump’s proposed tariffs and immigration policy on the broader economy. While most economists believe that the tariffs will likely create upward pressure on inflation, some suggest that Trump’s commitments to deregulate might eventually lower consumer prices over time.
In a recent speech in Australia, Fed governor Christopher Waller indicated a continued expectation for rate reductions this year but expressed support for the current pause. He remarked that should January’s inflation rise be determined as a temporary rise, as it was earlier in 2024, “rate cuts would be appropriate at some point this year.”
Waller continued by asserting that he does not foresee new tariffs having a significant inflating effect, adding that any price hikes would probably be brief. He concluded that the Fed should not feel compelled to revise its policies in light of the tariffs.
“I haven’t altered my outlook based on what has been implemented to date,” he noted, referencing Trump’s tariff strategies.
Federal Reserve members anticipate inflation risks rising and favor a halt in interest rate reductions.
