WASHINGTON — During a meeting held last month, officials from the Federal Reserve highlighted increasing concerns that inflation may rise, which influenced their decision to maintain the current benchmark interest rate.
Minutes from the January 28-29 meeting, released recently, indicated that various factors such as proposed tariffs by President Trump, significant consumer spending, and the mass deportation of migrants could contribute to inflationary pressures this year.
The committee members, comprising 19 policymakers who help determine interest rates, expressed that they would seek more substantial evidence of progress on inflation before considering any further reductions. They opted to keep the key rate at 4.3%, having previously cut it from a peak of 5.3%, a level not seen in two decades, late last year. This decision implies that consumers may not see a decrease in borrowing costs soon, affecting mortgages, auto loans, and credit card rates.
Recent government data indicated a potential increase in inflation, with many economists now predicting only one, if any, rate cut for this year. According to the Labor Department, consumer prices increased by 3% in January compared to the same month the previous year, up from a 3.5-year low of 2.4% recorded last September. However, the Federal Reserve generally monitors a different inflation metric that suggests inflation is around 2.5%.
The minutes also emphasized the “high degree of uncertainty” regarding the economy, which warranted a cautious approach from the Fed in contemplating any changes to interest rates. All members of the Federal Reserve’s decision-making body were in agreement to keep the key rate steady last month, a unified stance following a period of notable disagreements among officials regarding the appropriateness of further rate cuts versus concerns about persistent inflation.
A pivotal topic of interest on Wall Street is the duration of the Fed’s hiatus from cutting rates. According to futures prices, investors anticipate that the central bank will hold off on any cuts until July, with a second rate cut not expected until 2026.
Many Federal Reserve officials are closely observing the effects of Trump’s proposed tariffs and immigration policies on the economy. While most economists contend that these tariffs may drive inflation higher, some suggest that Trump’s commitments to regulatory reduction could eventually lower consumer costs.
Speaking in Australia on Monday, Fed governor Christopher Waller stated that he anticipates rates to decrease this year, but currently supports maintaining the status quo.
Waller remarked that should the recent uptick in inflation prove to be a temporary spike, similar to a previous occurrence in January 2024, “it would be appropriate to consider rate cuts at some point this year.”
He further commented that he does not expect new tariffs to significantly impact inflation levels, indicating that any price increases thus far would likely be short-lived, and as such, he does not believe the Fed should alter its policy due to tariff implementations.
“I haven’t changed my outlook based on the current measures that have been enacted,” Waller added, referring to Trump’s tariff proposals.
