Fed Officials Divided on Future Interest Rates

• The Fed held its benchmark rate at 3.5%-3.75% after three consecutive cuts in September, October, and December 2024, with officials split between prioritizing inflation control versus labor market support
• Key voting members including Lorie Logan (Dallas) and Beth Hammack (Cleveland) favor an indefinite hold on rate changes due to persistent inflation concerns, while some officials like Christopher Waller and Stephen Miran voted for another quarter-point cut
• Futures markets currently expect the next rate cut in June with another in September or October, though inflation remains around 3% (above the Fed's 2% target) and the unemployment rate sits at 4.3%

Summary: Fed Officials Divided on Future Interest Rates

Federal Reserve officials showed significant division at their January 27-28 meeting regarding the future path of monetary policy, according to minutes released Wednesday. While the decision to hold the benchmark interest rate steady at 3.5%-3.75% was largely approved, disagreement emerged over whether to prioritize fighting inflation or supporting the labor market.

Key Divisions:

Several participants indicated further rate cuts could be appropriate if inflation declines as expected. However, others argued for holding rates steady for an extended period until clear evidence emerges that disinflation is back on track. Some officials even suggested rate hikes might be necessary if inflation remains above the 2% target.

Recent Rate Actions:

The Fed previously cut rates by 0.75 percentage points cumulatively across three consecutive meetings in September, October, and December. Two regional presidents—Lorie Logan (Dallas) and Beth Hammack (Cleveland)—have publicly advocated for an indefinite hold, citing persistent inflation concerns.

Economic Indicators:

• Core inflation (PCE) remains around 3%, well above the Fed's 2% target
• Unemployment rate dipped to 4.3% in January
• Core CPI excluding food and energy reached its lowest level in nearly five years
• Private sector job growth is slowing, concentrated primarily in healthcare

Leadership Transition:

Current Chair Jerome Powell's term ends in May. Former Governor Kevin Warsh, who favors lower rates, is being considered as his replacement, potentially reshaping the Fed's policy direction.

Market Expectations:

Futures traders are pricing in the next rate cut for June, with another reduction expected in September or October, according to CME FedWatch.