Fed minutes show several officials nod to rate-hike scenario

Published Thu, Feb 19, 2026 · 06:19 AM

[WASHINGTON] US Federal Reserve officials signalled renewed worries over inflation with “several” policymakers suggesting the central bank may need to raise interest rates if inflation stays above their goal.

“Several participants” said that they would have preferred a post-meeting statement that raised the possibility of raising the federal funds rate “if inflation remains at above-target levels”, minutes of the central bank’s Jan 27 to 28 policy meeting, released on Wednesday (Feb 18), showed.

While the minutes fell far short of suggesting most officials were contemplating the possibility of rate increases, they made clear the Fed is shifting further away from agreeing on another cut. And that could put it on a collision course with the man US President Donald Trump has selected to be the next Fed chair.

Trump has repeatedly said that he wants the next Fed chief to deliver lower interest rates, and on Jan 30, two days after this policy meeting, he announced he would nominate former Fed governor Kevin Warsh to take over when Jerome Powell’s tenure as chair ends in May.

“The minutes carry a distinctly more hawkish tilt,” Gregory Daco, chief economist at EY-Parthenon, wrote in a note to clients. “This sets up an interesting dynamic if and when Kevin Warsh is confirmed as Fed chair.”

The minutes showed most of the Federal Open Market Committee (FOMC) believed last year’s labour market weakness, which prompted the central bank to lower rates three times in late 2025, was fading by late January.

“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 noted.

That was before the release of a strong January employment report. Moreover, one group of policymakers at the meeting was embracing a view even more hostile to additional rate cuts.

“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 per cent inflation objective,” the record showed.

Still, another group of “several officials” remained open to more rate cuts if inflation declined as they expected, though most said inflation progress could be slower than generally forecast.

The FOMC voted 10-2 at its January meeting to hold the benchmark federal funds rate in a range of 3.5 to 3.75 per cent. Governors Christopher Waller and Stephen Miran dissented in favour of a quarter-point reduction. Officials dropped language pointing to increased downside risks to employment that had appeared in the three previous statements.

Better data

Numbers published since the Fed’s January meeting have signalled accelerating growth, slowing inflation and a stabilising labour market.

The consumer price index (CPI) rose modestly in January, restrained by lower energy costs, according to Bureau of Labor Statistics (BLS). An underlying metric known as core CPI, which excludes food and energy, advanced as expected from a month earlier.

Payrolls rose in January by the most in more than a year and the unemployment rate unexpectedly fell, suggesting the labour market continued to stabilise at the start of 2026. Employers added 130,000 jobs and the unemployment rate declined to 4.3 per cent, according to BLS data.

Since the January meeting, several Fed policymakers have maintained that an overall stable US economy provides them room to be patient in considering additional rate adjustments. US President Donald Trump and other administration officials continue to call for the Fed to lower rates immediately.

Traders this year have eased back their expectations for when officials might next lower rates, though Fed funds futures contracts still suggest a cut is likely by June.

At their January meeting, the committee also voted unanimously to elect Fed chair Jerome Powell as chair of the FOMC, and to fill various other committee positions, “until the selection of their successors at the first regularly scheduled meeting of the committee in 2027”. BLOOMBERG