Federal Reserve Minutes Reveal Split on Interest Rate Path: A Battle Among Doves, Holders, and Hawks

The latest minutes from the Federal Reserve’s January monetary policy meeting show that officials expressed clear disagreements over the outlook for interest rates, wavering between curbing inflation and supporting the labor market.

After the monetary policy meeting concluded on January 28, the Federal Open Market Committee (FOMC) announced that the target range for the federal funds rate would remain unchanged at 3.50% to 3.75%, ending a three-rate cut streak.

In the decision, two Fed governors, Stephen Miran and Christopher Waller, voted against the measure, favoring a 25 basis point rate cut.

The newly released minutes state, “In assessing the outlook for monetary policy, some participants indicated that it might be appropriate to further lower the federal funds rate target range if inflation declines as expected.”

However, there was no consensus among policymakers on the next steps, with some emphasizing the importance of controlling inflation and others prioritizing employment support.

The minutes note, “Some participants believe that during the committee’s cautious assessment of upcoming data, policy rates may need to remain unchanged for a period. Some judged that further easing would be inappropriate until a clear downward trend in inflation is established.”

Additionally, a few officials suggested that the possibility of rate hikes should not be ruled out and hoped that the post-meeting statement would more clearly reflect that “rate decisions are two-sided.”

The minutes did not specify individual speakers but used vague terms such as “some,” “a few,” “many,” and “the vast majority” to describe their positions.

Most participants expect U.S. inflation to gradually decline this year, but “the pace and timing of the decline remain uncertain.” They mentioned tariffs’ upward pressure on prices and expect their impact to diminish over time.

The document states, “The majority of participants warned that progress toward the 2% inflation target could be slower and more uneven than expected, and the risk of inflation remaining above target remains significant.”

Nick Timiraos, a Fed spokesperson, commented that officials’ concerns about the labor market have eased, while worries about inflation have increased, with central bank officials describing inflation above the target as “a significant risk.”

Another analysis suggests that if Kevin Woorh is approved as the next Fed chair, internal divisions could further deepen.

(Source: Caixin)