Fed officials deeply divided over future rate cuts, need to see big drop in inflation: meeting minutes

• The Fed's preferred inflation measure is running at roughly 3%, above the 2% target, while the unemployment rate fell to 4.3% in January as employers added 130,000 jobs, the biggest gain in over a year
• Multiple camps emerged among officials: 'several' support cuts if inflation declines, 'some' favor keeping rates unchanged for an extended period, and 'several' wanted language signaling potential rate hikes
• The stance marks a shift from previous meetings, with some officials now open to potential rate hikes despite President Trump's demands for cuts to as low as 1%

Summary: Fed Officials Divided on Future Rate Cuts Amid Inflation Concerns

Federal Reserve officials remain deeply split on the path forward for interest rates, with many requiring further inflation declines before supporting additional cuts in 2025, according to minutes from last month's meeting.

Key Developments

The Fed held its benchmark rate steady at approximately 3.6% in January after three cuts in late 2024. Two officials—Fed Governors Stephen Miran and Christopher Waller—dissented, favoring an additional quarter-point reduction.

Committee Division

The minutes revealed three distinct camps among the 19-member rate-setting committee:

• "Several" officials support additional cuts if inflation continues declining
• "Some" officials favor holding rates steady "for some time"
• "Several" officials suggested the next move could be either a cut or hike—a notable shift from previous meetings when Chair Jerome Powell indicated rate increases weren't under consideration

Economic Indicators

Recent data suggests limited room for near-term cuts:

• Inflation: The Fed's preferred measure is expected at roughly 3% year-over-year (well above the 2% target), while the consumer price index showed 2.4% growth in January
• Employment: January hiring added 130,000 jobs (the strongest gain in over a year), with unemployment declining to 4.3% from 4.4%
• The "vast majority" of officials agreed labor market risks have diminished and unemployment has stabilized

Market Implications

The Fed appears positioned to maintain current rates for several months despite President Trump's calls to reduce rates to as low as 1%. Fed Governor Michael Barr stated it's "likely appropriate to hold rates steady for some time," though Chicago Fed President Austan Goolsbee suggested "several more" cuts remain possible if inflation approaches target levels.