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Federal Reserve policymakers warned that progress towards the central bank’s inflation target “might be slower and more uneven than generally expected”, according to minutes from last month’s rate-setting meeting.
Minutes released on Wednesday of the Federal Open Market Committee’s January 27-28 meeting showed policymakers anticipated US inflation would continue to slow towards its 2 per cent goal even as “the pace and timing of this decline remained uncertain”.
“Most participants, however, cautioned that progress towards the committee’s 2 per cent objective might be slower and more uneven than generally expected and judged that the risk of inflation running persistently above the committee’s objective was meaningful,” the minutes read.
The FOMC voted last month to hold borrowing costs steady following three straight 0.25 percentage point cuts, leaving the federal funds rate in a range of 3.5 to 3.75 per cent. Two governors dissented from the decision, voting instead for a further quarter-point cut.
Fed chair Jay Powell said after the January meeting that the committee would likely keep rates on hold for the foreseeable future as inflation edged lower and the labour market showed “evidence of stabilisation”.
Wednesday’s record of the meeting made clear that most committee members backed that position, with policymakers indicating it would “likely be appropriate to hold the policy rate steady for some time as the committee carefully assesses incoming data”.
Some of them “judged that additional policy easing may not be warranted until there was clear indication that the progress of disinflation was firmly back on track”.
Several members went further, noting a rate rise “could be appropriate if inflation remains at above-target levels”.
The Fed targets price stability and maximum employment.
Wednesday’s minutes suggested the Fed was homing in on the inflation side of its mandate given that “almost all members no longer judged that downside risks to employment had risen in recent months”.
On the jobs market, which was dogged by tepid hiring in 2025, rate setters generally agreed that recent data “suggested that labor market conditions may be stabilising after a period of gradual cooling”.
A report last week showed the US economy added 130,000 jobs in January, its strongest performance in more than a year.
Inflation has ratcheted gradually lower in recent months, but remains above the Fed’s target level. The central bank’s preferred PCE inflation gauge rose at a 2.8 per cent annual pace in November. A separate index of consumer prices climbed at a 2.4 per cent rate in January.
Policymakers were generally confident that the effect of tariffs on prices would decline this year, while some indicated housing inflation was likely to continue to fall. Several members also said that higher productivity growth due to technological developments should help tame price rises.
But policymakers emphasised that the fall in price growth could still be slower than anticipated, with some pointing to reports from business contacts who expected tariffs and demand pressures to continue fuelling price increases.
Markets were steady following the release of the minutes on Wednesday, with the two-year yield up slightly to 3.46 per cent. Trading in federal funds futures shows investors expect two to three rate cuts this year.
Additional reporting by Kate Duguid in New York