Federal Reserve officials signaled renewed worries over inflation with several policymakers suggesting that the central bank may have to raise interest rates in an attempt to curb inflation.
“Several participants indicated that they would have supported a two-sided description of the 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,” according to the released record of Federal Reserve’s January meeting showed.
Minutes of the Federal Open Market Committee’s Jan. 27-28 meeting released Wednesday further stated that several participants cautioned that easing policy further in the context of elevated inflation readings could be misinterpreted as implying diminished policymaker commitment to the 2 percent inflation objective, perhaps making higher inflation more entrenched.
The Federal Reserve kept its benchmark interest rates unchanged in the first FOMC meeting of 2026.
The FOMC voted 10-2 at the meeting to hold the benchmark federal funds rate in a range of 3.5%-3.75%. Governors Stephen I. Miran and Christopher J. Waller both voted against the policy decision. Both Miran and Waller preferred to lower the target range for the federal funds rate by 25 bps at the meeting.
Rate Cuts If Inflation Is Down
Several officials saw the likelihood for more rate cuts if inflation declined as they expected.
"Several commented that further downward adjustments to the target range for the federal funds rate would likely be appropriate if inflation were to decline in line with their expectations," as per the minutes.
All participants agreed that monetary policy was not on a preset course and would be informed by a wide range of incoming data, the evolving economic outlook, and the balance of risks.
Few participants highlighted the risk that labor market conditions could deteriorate significantly while expressing confidence that inflation would continue to decline. These participants cautioned that keeping policy overly restrictive could risk further deterioration in the labor market.
Market Reaction
U.S. equities shed some of their gains after the FOMC minutes report but were still in green in Wednesday’s trade. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was up by 0.32%, the Invesco QQQ Trust ETF (QQQ) jumped 0.5%, while the SPDR Dow Jones Industrial Average ETF Trust (DIA) rose 0.13%. Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘neutral’ territory.