Fed Minutes reveal hawkish twist as some officials raise rate-hike talk

Federal Reserve officials adopted a notably more cautious tone at their late-January meeting, revealing deeper concern about inflation and less appetite for further interest-rate cuts than markets had anticipated.

Minutes from the Jan. 27–28 meeting of the Federal Open Market Committee show that while policymakers stopped short of signaling imminent tightening, several participants raised the possibility that rates might need to increase if inflation proves more persistent than expected.

The discussion underscores a meaningful pivot. Just months ago, the Federal Reserve had cut rates three times in late 2025 in response to signs of labor-market softness. By January, however, officials judged that those downside employment risks had moderated, while inflation risks remained elevated.

“The vast majority of participants judged that downside risks to employment had moderated in recent months while the risk of more persistent inflation remained,” the minutes stated.

A Fed moving away from cuts

At the January meeting, the committee voted 10-2 to hold the federal funds rate steady in a range of 3.5% to 3.75%. Governors Christopher Waller and Stephen Miran dissented in favor of a quarter-point cut.

Notably, officials removed language from prior statements that had highlighted increased downside risks to employment. Instead, the tone shifted toward vigilance on inflation.

Several participants cautioned that easing policy further while inflation readings remain elevated could be misinterpreted as weakening commitment to the Fed’s 2% target. That phrasing signaled a more hawkish tilt, even if no consensus emerged around actual rate hikes.

At the same time, another group of policymakers said additional cuts could still be appropriate if inflation slows as projected, though many acknowledged that progress could take longer than previously assumed.

Stronger data reinforce patience

Economic data released after the meeting have largely supported the Fed’s cautious stance.

January payrolls rose by 130,000, the strongest gain in more than a year, while the unemployment rate fell to 4.3%. Meanwhile, consumer price data showed modest headline inflation, with core CPI — excluding food and energy — rising in line with expectations.

The combination of steady hiring, moderating but still-elevated inflation and resilient growth has given policymakers room to pause.

Traders have scaled back expectations for near-term easing, though fed funds futures still imply a potential cut by June.

Collision course with the White House?

The Fed’s firmer posture risks putting it at odds with President Donald Trump, who has repeatedly called for lower borrowing costs.

Two days after the January meeting concluded, Trump announced his intention to nominate Kevin Warsh as the next Fed chair when Jerome Powell’s term ends in May. Trump has made clear he expects the next chair to pursue lower interest rates.

The minutes, however, suggest that policymakers are not aligned behind further easing in the near term — and in some cases are contemplating the opposite scenario.

Since the meeting, several Fed officials have reiterated that a stable economy allows them to remain patient. Markets now face a more nuanced landscape: a central bank that is no longer leaning toward cuts, a White House advocating easier policy, and incoming leadership that may need to balance both political expectations and inflation risks.

For now, the January minutes make one point clear: the debate inside the Fed has shifted. Rate cuts are no longer the default assumption — and in certain scenarios, the next move could even be higher.