The US central bank has been battling to bring inflation down to its long-term two-percent target since the pandemic, with prices remaining persistently high.
In January, the Fed chose to keep interest rates steady – after three cuts in 2025 – citing robust economic growth and the risk of inflation.
An increase in the interest rate “could be appropriate if inflation remains at above-target levels,” minutes from that meeting said.
US unemployment came in at 4.3% in January, remaining relatively steady as a result of drops in both labor supply and demand.
Participants saw the labor market further stabilizing under “appropriate monetary policy,” but noted that the outlook for employment remained “uncertain.”
“The vast majority of participants judged that downside risks to employment had moderated in recent months while the risk of more persistent inflation remained, and some commented that those risks had come into better balance,” the minutes said.
Analysts said the Fed’s pause on rate cuts indicated confidence in the labor market.
“The January meeting minutes underscore how most Fed officials see no urgency to act any time soon,” said Heather Long, chief economist at Navy Federal Credit Union.
Participants saw economic activity as “expanding at a solid pace,” but noted similar “high” uncertainty in the outlook for growth, the minutes said.
At January’s meeting, the Fed voted 10-2 to maintain rates at a range between 3.50% and 3.75%, in line with expectations.
Fed governors Stephen Miran and Christopher Waller both backed a quarter-percentage-point rate cut instead.
Looking ahead, all eyes will be on the policy signals from President Donald Trump’s choice as the next central bank chief – Kevin Warsh – as chairman Jerome Powell’s term ends in May.
But first, Warsh will need to be confirmed by the US Senate, where he faces tough questions from lawmakers, as Trump attempts to undermine the central bank’s independence.
Financial markets generally expect the Fed to keep rates unchanged until its June meeting, according to CME FedWatch.
Long, the analyst, said waiting until then “would also help relations between the White House and the Fed,” which have been tumultuous, with Trump constantly criticising current chair Powell for not cutting rates fast enough for his liking.