Fed minutes show division, and talk of rate hikes, beneath January pause

Federal Reserve officials were in near-unanimous agreement to keep interest rates on hold at their meeting last month, but remained split over what might happen next, with "several" policymakers raising the risk of possible hikes in borrowing costs if inflation remains elevated, and others split over if and when further cuts might be warranted, according to minutes of their January 27-28 ‌meeting.

The decision to ⁠hold rates ⁠steady was shared by "almost all" U.S. central bank officials as a way to assess where the economy stood after 75 basis points of cuts last ​year, with only a "couple" supporting a rate cut, said the minutes, which were released on Wednesday.

Fed Governors Christopher Waller and Stephen Miran ​both cast dissenting votes at the meeting based on concerns the job market may be at risk of weakening.


But opinion fractured among the other 17 officials, with the first direct mention of possible rate hikes if inflation remains above the Fed's 2% target. ​It is currently running about a percentage point above that level.

Though an expected ⁠easing of ‌inflation this year is widely anticipated and expected to clear the way for further rate cuts, the ​minutes said that "several ​participants indicated they could have supported a two-sided description of the (Federal Open Market) Committee's future interest ⁠rate decisions, reflecting the possibility that upward adjustments to the target range for the ​federal funds rate could be appropriate if inflation remains at above-target levels."

"Some" others felt ​rates would need to be on hold "for some time" while they awaited new inflation and economic data, with a subset of that group arguing that cuts may not be appropriate at all until there is evidence that "disinflation is back on track."

"Several," by contrast, said their baseline outlook for inflation and the economy did include further rate reductions.

The minutes put the debate at the January meeting in a hawkish light as officials voted to hold the policy rate steady in the current 3.50%-3.75% range ‌and signal it may remain there for some period of time. Investors expect the Fed to keep its current policy rate in place until the June 16-17 meeting, with quarter-percentage-point rate cuts anticipated at ​that session and the one ​in September.

FED CHIEF SUCCESSION

The June ⁠meeting could be the first under Fed chief nominee Kevin Warsh if he is confirmed by the U.S. Senate in time to take over when Fed Chair Jerome Powell's term as head of the central bank ends in May.

The Fed's next ​meeting is scheduled for March 17-18, when policymakers will provide updated economic and interest rate projections.

Data releases since the January meeting have done little to resolve the debate over whether the Fed should prioritize putting further downward pressure on inflation by leaving borrowing costs where they are or supporting job and economic growth with cheaper credit.

Consumer price inflation for January was weaker than expected, yet job growth for the month beat expectations and the unemployment rate fell, with most officials saying they expect reasonably strong economic growth to continue. (Reporting by Howard Schneider; Editing by Andrea Ricci and Paul Simao)