But for the pair of formal dissents registered by Federal Reserve governors Christopher Waller and Stephen Miran, officials at the U.S. central bank seem to have hit pause on rate cuts in January without the “strongly differing views” in meetings at the end of last year.
Instead, minutes released Wednesday from the Federal Open Market Committee (FOMC) meeting three weeks ago underscore specific concerns about job markets that most participants saw as slowly stabilizing and a commitment to returning the annual pace of inflation to the Fed’s stated 2% target.
After the FOMC voted to leave the federal funds rate in its target range of 3.5% to 3.75% last month, Fed Chair Jerome Powell told reporters that the decision reflected a consensus view that outlooks for economic output in 2026 had improved in the intermeeting period.
“There was broad support on the committee for holding today,” Powell said in January, which the minutes released Wednesday affirm. The minutes underscore, though, just how dependent the path of monetary policy in 2026 is on a basket of economic uncertainties.
“Nominal goods exports rose further in October, while nominal goods imports declined sharply after falling in the third quarter,” the minutes indicated, for example. “Accordingly, the goods trade deficit continued to narrow following a substantial widening at the start of 2025 that resulted from a front-loading of imports ahead of anticipated tariff hikes.”
Fed policymakers discuss Fannie and Freddie
In early January, President Donald Trump confirmed that he had directed Fannie Mae and Freddie Mac to buy up to $200 billion in mortgage-backed securities (MBS) to lower mortgage rates and stimulate housing demand, a policy that some economists viewed as an attempt to circumvent the Fed’s determination to let MBS run off its balance sheet.
The minutes show policymakers discussed how the MBS announcement “was followed by a notable decline in mortgage-backed securities yields relative to those on comparable-maturity Treasury yields.”
Officials concluded, however, that the decline “was unlikely to result in a material increase in mortgage refinancing because current mortgage rates are well above the weighted average rate of outstanding mortgages.”
A rate-hike consideration
While Powell noted in his January press conference that a rate hike to more aggressively combat above-target inflation was not in any policymakers’ base-case scenario, the potential for a future hike nevertheless crept into their discussions last month.
“Several participants indicated that they would have supported a two-sided description of the Committee’s future interest rate decisions,” the minutes indicated, “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.”
While “a few” participants said that businesses pursuing automation would be able to avert price hikes linked to tariffs and other pressures, “some” participants said businesses still planned to raise prices this year as their costs increase.
“The staff’s inflation forecast was slightly higher, on balance, than the one prepared for the December meeting,” the minutes noted, however.
Diminishing risk to job markets
Perhaps of greatest uncertainty to Fed officials in January was the evolution of labor market conditions that, after prompting alarm last fall, now show signs of stabilization — with major caveats linked to immigration policy, tariffs, advancements in AI and productivity.
The vast majority of participants judged that labor market conditions had been showing some signs of stabilization and that downside risks to the labor market had diminished,” the minutes read, which Powell had also expressed last month.
Yet the minutes also indicated that “some participants pointed to the possibility that a further fall in labor demand could push the unemployment rate sharply higher in a low-hiring environment or that the concentration of job gains in a few less cyclically sensitive sectors was potentially signaling heightened vulnerability in the overall labor market.
While government employment data for January showed sharp growth in payrolls, the job gains were lopsided, with heavy concentrations in the health care and social services sectors, and the report was accompanied by a massive downward revision to last year’s annual payroll figures.
Even the quality of the data and statistical inputs that the Fed will rely on to make monetary policy decisions in 2026 has become an aspect of its deliberative process that requires increased scrutiny.
“In addition, delays in statistical releases and related data-quality issues were providing an additional source of uncertainty,” the minutes noted in one section, while underscoring elsewhere that “data collection issues related to the government shutdown had likely pushed down the levels of the CPI and the PCE price index in November and December.”
Ultimately, as of late January, the minutes reveal that policymakers persisted in their median projections of two 25-basis-point rate cuts in 2026, as laid out in forward-looking surveys of Fed officials in December. But nothing will come easy for FOMC members as they navigate that path.
