WASHINGTON — Officials from the Federal Reserve indicated last month that there are increasing concerns regarding the potential for inflation to escalate, a significant factor that influenced their decision to maintain the current interest rate.
The minutes from the meeting held on January 28-29, released on Wednesday, revealed that Fed officials noted the impact of President Trump’s proposed tariffs and widespread migrant deportations, alongside robust consumer spending, as elements likely to contribute to inflationary pressures this year.
The 19 members who actively participate in the Fed’s rate decisions expressed a collective desire to see additional progress in combating inflation before contemplating further reductions. The Federal Reserve decided to keep its key interest rate steady at 4.3%, maintaining the rate after a reduction from a peak of 5.3% late in the previous year. This decision suggests that borrowing expenses for consumer loans, including mortgages, auto loans, and credit cards, are not expected to decrease in the near future.
Recent government data indicated a worsening inflation scenario, leading many economists to predict that there may only be one interest rate cut, if any, for this year. The Labor Department reported that consumer prices increased by 3% in January compared to the previous year, a rise from a 3.5-year low of 2.4% observed last September. However, the Fed follows another inflation measure that indicates inflation is closer to 2.5%.
The meeting minutes also highlighted a “high degree of uncertainty” surrounding the economic landscape, which prompted the Fed to adopt a meticulous approach regarding any forthcoming adjustments to the key interest rate.
All policymakers within the Federal Reserve expressed agreement to keep the interest rate steady during the last month’s meeting, as noted in the minutes. This consensus comes after a period of growing disagreement among officials over the balance between further rate reductions and ongoing concerns about persistent inflation.
A significant concern among Wall Street investors is the duration of the Fed’s pause on rate cuts. Futures prices suggest that investors believe the central bank will not implement another cut until July, with no expectations for a subsequent reduction until 2026.
Many Federal Reserve officials have indicated a desire to observe the effects of Trump’s proposed tariffs and immigration policies on the economy. While the majority of economists predict that these tariffs will amplify inflation, some argue that Trump’s initiatives to reduce regulations could eventually lead to lower consumer prices.
On Monday, Fed Governor Christopher Waller delivered a speech in Australia, expressing an expectation that interest rates will decline this year, though he supports the current pause for the moment.
Waller remarked that if the recent inflation increase turns out to be an anomaly, similar to what was observed in January 2024, then he believes “rate cuts would be appropriate at some point this year.”
He also conveyed skepticism regarding the notion that new tariffs would substantially impact inflation levels, suggesting that any price increases from tariffs would likely be short-lived. Consequently, Waller indicated that the Fed should not feel compelled to alter its policies in response to the tariffs currently being implemented.
“I haven’t altered my outlook based on what has been implemented to date,” he stated concerning Trump’s tariff announcements.
