Members of the U.S. Federal Reserve (Fed) largely agreed last month (January) to keep the federal funds rate unchanged, but they were divided over the future path of monetary policy.
At its regular Federal Open Market Committee (FOMC) meeting held on January 27-28 (local time), the Fed kept the target range for the federal funds rate at 3.50-3.75% per year. The vote was 10 in favor and 2 against.
According to the minutes of the January meeting released by the Fed on the 18th (local time), "A vast majority of participants judged that, over the past few months, downside risks to employment had eased, whereas the risk that inflation would remain persistently higher was still present." The minutes showed that the Fed’s risk assessment had shifted more toward inflation than the labor market.
The committee members also expected inflation to slow in a way that would bring it closer to the 2% target. At the same time, they assessed that the process "could be slower and more uneven than generally expected." They added that "the risk that inflation would persistently exceed the target was significant."
Internal differences over the interest rate path also emerged. Some members maintained the view that, if inflation declined in line with the expected trajectory, they could move to cut rates. In contrast, more members stressed that they needed clear signs that progress on inflation was "definitively back on a normal path" before lowering rates.
A few members also argued that future policy decisions should balance not only the possibility of rate cuts but also the possibility of rate hikes. The minutes noted that, if inflation continued to run above the target, upward adjustments to interest rates could be appropriate.
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