US Federal Reserve officials appeared surprisingly wary of cutting interest rates when they met last month, with several even suggesting the central bank might need to raise rates if inflation remains stubbornly high.
While the minutes of the central bank’s Jan. 27-28 policy meeting, released on Wednesday, fell far short of suggesting most officials were contemplating the possibility of rate increases, they made clear the Fed is shifting further away from agreeing on another cut.
That could put it on a collision course with US President Donald Trump and complicates the task of Trump’s nominee for Fed chair, Kevin Warsh.
Photo: Reuters
Trump has repeatedly said he wants the next Fed chief to deliver lower interest rates, and on Jan. 30, two days after this policy meeting, he announced he would nominate Warsh, a former Fed governor, to take over when Jerome Powell’s tenure as chair ends in May.
“The minutes carry a distinctly more hawkish tilt,” EY-Parthenon chief economist Gregory Daco wrote in a note. “This sets up an interesting dynamic if and when Kevin Warsh is confirmed as Fed chair.”
White House spokesman Kush Desai said recent favorable price data provided proof that inflation is now “cool and stable” due to Trump’s policies aimed at spurring the economy’s supply side.
“It’s high time for the Federal Reserve to acknowledge this abundantly clear reality and cut rates to deliver further economic relief for American homebuyers and businesses,” he said.
The minutes showed most of the Federal Open Market Committee (FOMC) believed last year’s labor market weakness was fading by late last month.
“The vast majority of participants judged that downside risks to employment had moderated in recent months while the risk of more persistent inflation remained,” the minutes said.
That was before the release of a strong employment report for last month. Moreover, one group of policymakers at the meeting was embracing a view even more hostile to additional rate cuts.
“Several participants cautioned that easing policy further in the context of elevated inflation readings could be misinterpreted as implying diminished policymaker commitment to the 2 percent inflation objective,” the record showed.
Still, another group of “several officials” remained open to more rate cuts if inflation declined as they expected, though most said inflation progress could be slower than generally forecast.
The FOMC voted 10-2 at its meeting last month to hold the benchmark federal funds rate in a range of 3.5 percent to 3.75 percent.
Numbers published since that meeting have signaled accelerating growth, slowing inflation and a stabilizing labor market.
Since last month’s meeting, several Fed policymakers have maintained that an overall stable US economy provides them room to be patient in considering additional rate adjustments, while Trump and other administration officials continue to call for the Fed to lower rates immediately.
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