WASHINGTON — During a meeting held last month, officials from the Federal Reserve acknowledged escalating risks that inflation could worsen, which influenced their decision to keep the benchmark interest rate steady.
Minutes from the meeting on January 28-29, released recently, revealed that these officials cited several contributing factors, including proposed tariffs by President Donald Trump, large-scale migrant deportations, and robust consumer spending, that could drive inflation higher in the coming year.
The 19 officials involved in interest-rate decisions signaled a preference for observing more progress on inflation before considering any additional cuts. Consequently, the Fed maintained its key interest rate at 4.3%, a reduction from a peak of 5.3% reached late last year. This decision likely means that borrowing costs for consumers—covering mortgages, auto loans, and credit cards—are not expected to decrease in the near future.
Recent government data suggested a possible increase in inflation levels, prompting many economists to now predict only a single rate cut, if any, throughout this year. According to the Labor Department, consumer prices saw a 3% rise in January compared to the same month the previous year, a notable increase from a low of 2.4% recorded in September. However, the Federal Reserve is primarily focused on another inflation measure that indicates a rate closer to 2.5%.
The minutes also highlighted a “high degree of uncertainty” regarding the economic landscape, justifying a careful approach by the Fed concerning any modifications to the key interest rate. All policymakers unanimously backed the decision to keep the interest rate steady last month, reflecting a momentary consensus after prior divergent views among officials about further rate reductions and concerns over persistent inflation.
A pivotal topic for Wall Street is the duration of the Fed’s hold on rate cuts. Investors on Wall Street anticipate that the central bank will not implement any further cuts until July, with expectations for a follow-up cut not emerging until 2026.
Several Fed officials have expressed a desire to assess the impact of Trump’s proposed tariffs and immigration policies on the economy. Most economists predict that these tariffs will lead to increased inflation, although there are some who suggest that Trump’s regulatory rollbacks might eventually lower consumer prices.
On Monday, Federal Reserve Governor Christopher Waller, speaking in Australia, conveyed his anticipation that interest rates may decline this year but also supported the current pause.
Waller commented that if the recent inflation spike is found to be a temporary occurrence, as it was in January 2024, “rate cuts would be appropriate at some point this year.” He also expressed skepticism about the potential impact of new tariffs on inflation, suggesting that any price increases might only be short-lived and that the Fed should not feel compelled to change its policy in response to tariff announcements.
“I haven’t altered my outlook based on what has been implemented to date,” Waller stated regarding Trump’s tariff measures.
