WASHINGTON — Federal Reserve officials expressed growing concerns about the potential for heightened inflation during their recent meeting, which is one reason they opted to maintain the current benchmark interest rate.
The minutes from the meeting that took place on January 28-29, released on Wednesday, indicated that various factors—including President Donald Trump’s suggested tariffs and large-scale deportations of migrants, alongside robust consumer spending—might contribute to rising inflation levels in the coming year.
The 19 officials involved in making interest-rate decisions signaled that they would like to see more progress regarding inflation before considering any further rate cuts. They decided to hold the key interest rate steady at 4.3%, following a reduction from a two-decade peak of 5.3% late in the previous year. This decision suggests that lower borrowing costs for consumers—such as for mortgages, car loans, and credit cards—are unlikely to materialize in the near term.
Recent government data indicated that inflation could be worsen, prompting many economists to predict only one possible rate cut, if any, throughout this year. According to the Labor Department, consumer prices rose by 3% in January compared to the previous year, marking an increase from a 3.5-year low of 2.4% recorded last September. However, the Fed tends to prioritize a different measure of inflation that currently indicates a rate closer to 2.5%.
The meeting notes also highlighted a significant amount of uncertainty surrounding the economy, reinforcing the Fed’s cautious approach in contemplating any further changes to its principal interest rate.
All policymakers at the Fed unified in their decision to maintain the current interest rate during last month’s meeting, as stated in the minutes. This consensus follows recent indications of a rift among officials, dividing those who advocate for more rate cuts and those who remain concerned about resilient inflation.
A pivotal consideration, particularly among Wall Street investors, is the anticipated duration of the Fed’s pause on rate cuts. Current market predictions suggest that the central bank is unlikely to implement another rate reduction until at least July, with no expectation for a second cut until the year 2026.
Numerous Fed officials have conveyed their desire to assess the economic impact of Trump’s proposed tariffs and immigration policies. While most economists predict that these tariffs could drive inflation higher, others contend that Trump’s vows to minimize regulations could potentially reduce consumer prices in the long-term.
On Monday, Fed governor Christopher Waller addressed an audience in Australia, maintaining his belief that interest rates would eventually decrease this year but advocating for a current pause.
Waller remarked that if last month’s inflation increase proves to be an anomaly, akin to a similar situation in January 2024, then “rate cuts would be appropriate at some point this year.” He also expressed skepticism about the lasting impact of new tariffs on inflation, positing that any price increases are likely to be short-lived, indicating that the Fed should not necessarily alter its policies in response to the tariffs.
“I haven’t changed my outlook based on what has been implemented to date,” he stated regarding Trump’s tariff proposals.
