Minutes of the January meeting by the Federal Reserve showed that almost all members supported the decision to keep interest rates at current levels.
The decision was made after three consecutive cuts of 25 basis points, citing the strengthening economic growth and labor market. After the overall easing of 75 basis points, the rate range of 3.50%–3.75% is considered appropriate for now.
Although the stance remained stable, the tone of the meeting minutes signaled that a rate hike has not yet been completely ruled out. Several members expressed a willingness to consider an upward adjustment if inflation continues to remain above the 2% target.
This reflects a two-pronged approach, where easing or tightening still depends on data developments.
The meeting was conducted by the Federal Open Market Committee (FOMC) which saw inflation remaining at a relatively high level despite economic activity growing at a strong pace. Employment growth was seen as moderate while the unemployment rate showed signs of stabilization.
Data after the January meeting showed a strong NFP report and consumer inflation slowing down on a monthly basis. This development gives the central bank room to hold rates for the time being while it assesses further data.
However, the Fed is focusing more on the personal consumption expenditure (PCE) price index as a key inflation benchmark, with the latest reading awaited by the market.
Some members also believe that additional rate cuts may not be necessary until there is clear evidence that the disinflation process is truly back on target. This indicates a cautious approach and depends entirely on the inflation trajectory.
According to market data, traders still expect a 25 basis point cut to potentially occur as early as June. However, expectations are increasingly sensitive to any inflation data shocks or changes in policymakers' tone.
The minutes were also published in an atmosphere of political uncertainty, including President Donald Trump's nomination of former Fed Governor Kevin Warsh as the next chairman.
At the same time, markets are also monitoring developments involving current chairman Jerome Powell, which adds an element of uncertainty to the direction of monetary policy.
Overall, the Fed is currently in wait-and-see mode. Rates remain steady, but the door is still open for another hike if inflation fails to show convincing progress.
