Fed Divided Over Policy Path as Focus Shifts to Inflation, Meeting Minutes Show

03:39 PM EST, 02/18/2026 (MT Newswires) -- Federal Reserve officials seemed divided over the projected path of interest rates as the focus shifted from labor market weakness to concerns about elevated inflation, minutes from the central bank's Jan. 27-28 meeting showed Wednesday.

At the meeting, the Federal Open Market Committee decided to keep its benchmark lending rate unchanged between 3.50% and 3.75%, citing high inflation and signs of stabilization in the labor market. Last year, the FOMC delivered three back-to-back 25-basis-point interest rate cuts amid concerns about the labor market.

"In considering the outlook for monetary policy, several participants 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," the meeting minutes showed Wednesday.

However, some officials supported holding rates steady "for some time" until the progress of disinflation gets back on track, according to the document.

Earlier this month, official data showed that US consumer inflation eased in January, with core price growth marking the slowest pace in nearly five years. The economy added more jobs than projected last month, while the unemployment rate slipped, according to a separate US government report.

"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," the minutes showed.

Majority of meeting participants saw employment risks as having moderated in recent months, though they judged that the risk of more persistent inflation remained, the document showed.

Fed Governors Christopher Waller and Stephen Miran dissented from the majority at the January meeting, with both preferring to reduce rates by a quarter percentage point.

"Those who preferred to lower the target range at this meeting expressed concerns that the current stance of the policy rate was still meaningfully restrictive and viewed downside risks to the labor market as a more prominent policy concern than the risk of persistently elevated inflation," according to the minutes.

While meeting participants expected inflation to move down toward the FOMC's 2% target, the pace and timing of the projected fall remained uncertain. Officials expected the labor market to stabilize and then improve this year, the minutes showed.

"All in all, the minutes from January's meeting have thrown a little cold water on hopes for more expeditious rate cuts from the (Fed)," TD Economics Senior Economist Vikram Rai said in a report. "We continue to expect the committee to remain on pause this quarter as the data calendar catches up from the shutdown, and the picture of labor market risks and the persistence of inflation both become clearer."

Markets widely expect the FOMC to keep interest rates unchanged next month, according to the CME FedWatch tool.

Late in January, US President Donald Trump nominated former Fed Governor Kevin Warsh to replace Jerome Powell as the central bank's chair in May.

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