The latest meeting minutes reveal that Federal Reserve officials adopted a surprisingly cautious stance toward interest rate reductions during the January policy meeting, with some even warning that further rate hikes could not be ruled out if inflation remains persistently high. According to the minutes from the January 27-28 policy meeting released on Wednesday, while most officials did not explicitly discuss rate hike options, the Fed is gradually shifting toward a more hawkish policy posture.
Two days after the meeting concluded, on January 30, former Fed Governor Kevin Warsh was announced as the nominee to succeed current Chair Jerome Powell when his term ends in May. EY-Parthenon Chief Economist Gregory Daco noted in a client report that the minutes were "clearly more hawkish in tone," adding that policy dynamics would become more intriguing if Warsh is confirmed as the next Fed chair.
The minutes indicated that a majority of Federal Open Market Committee (FOMC) members believed signs of labor market weakness, which had prompted three rate cuts by late 2025, had noticeably eased by late January. "A substantial majority of participants assessed that the downside risks to employment had diminished in recent months, while risks of persistently high inflation remained." Notably, this assessment preceded the release of the strong January employment report.
Meanwhile, some officials took a firmer stance against further policy easing during the meeting. The minutes stated that "several participants cautioned that additional policy easing amid still-elevated inflation could be misinterpreted by markets as a weakening of the Committee’s commitment to its 2% inflation target." However, a "number of officials" expressed openness to future rate cuts if inflation declines as expected, though most believed the disinflation process might be slower than previously anticipated.
At the January meeting, the FOMC voted 10-2 to maintain the federal funds rate target range at 3.5% to 3.75%. Governors Christopher Waller and Stephen Milan dissented, favoring a 25-basis-point rate cut. Unlike the previous three statements, this one omitted language referring to increased downside risks to employment.
**Data Improvements Reinforce Wait-and-See Stance** Economic data released since the January meeting generally point to accelerating growth, moderating inflation, and a stabilizing labor market. U.S. Bureau of Labor Statistics figures show the Consumer Price Index (CPI) rose modestly in January, restrained mainly by falling energy prices, while core CPI—excluding food and energy—increased in line with market expectations.
On the employment front, nonfarm payrolls posted their largest gain in over a year, adding 130,000 jobs, while the unemployment rate unexpectedly fell to 4.3%, indicating continued labor market stabilization early in 2026. Against this backdrop, several Fed officials have recently reiterated that overall U.S. economic stability affords them room to remain patient in adjusting the rate path. However, the administration continues to urge the Fed to cut rates promptly.
In markets, traders have pushed back expectations for the timing of the next Fed rate cut this year, though federal funds futures still indicate a possibility of a cut in June.