Fed Policymakers Split Over Next Moves on Rates

Fed officials are divided over the future path of interest rates, reflecting a tension between the need to contain inflation and the desire to support the labor market, according to the minutes of the January 2026 FOMC meeting. Several participants indicated that further reductions in the fed funds rate would likely be appropriate if inflation continues to decline in line with their expectations. Others argued that it may be prudent to hold the policy rate steady for some time and some even raised the possibility that rate increases could become necessary if inflation remains persistently above target. In addition, a vast majority of participants judged that downside risks to employment had moderated in recent months while the risk of more persistent inflation remained. The Fed left the federal funds rate unchanged at the 3.5%–3.75% target range in its January 2026 meeting, in line with expectations, after three consecutive rate cuts last year.

The current policy stance risks slowing U.S. growth, Federal Reserve Governor Stephen Miran said in a speech. He argued rates may be tighter than necessary despite supportive measures from the Trump administration, including tax cuts. Speaking at the Federal Reserve Bank of Dallas, Miran warned that “the biggest risk… is that we’re misconstruing just how tight monetary policy is,” and reiterated his call for further rate cuts. Miran said he does not see a significant inflation threat, noting that very low shelter inflation could offset price pressures elsewhere. “I have a hard time being concerned about inflation,” he said. As long as inflation remains contained, he believes the Fed should continue supporting the labor market with looser policy, especially as supply growth outpaces demand, allowing the economy to expand without reigniting price pressures.

The Fed left the federal funds rate unchanged at the 3.5%–3.75% target range in its January 2026 meeting, in line with expectations, after three consecutive rate cuts last year that pushed borrowing costs to their lowest level since 2022. Governors Stephen Miran and Christopher Waller however, voted against the hold, with both advocating another 25bps cut. Policymakers noted that economic activity has been expanding at a solid pace, job gains have remained low, and the unemployment rate has shown some signs of stabilization, while inflation remains somewhat elevated. The central bank also reinforced that it will carefully assess incoming data, the evolving outlook, and the balance of risks when considering the next adjustments to the fed funds rate. During the regular press conference, Chair Powell said the US economy is coming into 2026 on a firm footing and that interest rates right now are appropriate to promote progress toward both of the Fed’s goals.