Fed officials voiced concern inflation persists above 2% target

Dive Brief:

Several Federal Reserve officials voiced concern that inflation persists above their 2% goal and cautioned that further monetary easing could signal a weaker commitment to reducing price pressures, according to minutes of their Jan. 27-28 meeting released Wednesday.
A “vast majority” of Fed officials noted at the meeting that the labor market showed signs of firming while inflation stayed above their target, according to the minutes. Most policymakers voted to hold the main interest rate steady after three consecutive quarter-point trims in the final months of 2025. Two Fed governors dissented, favoring another rate reduction despite above-target 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 minutes.

Dive Insight:

Fed officials, while holding the benchmark rate at a range between 3.5% and 3.75%, warned against giving any hint of a weaker commitment to pushing down price pressures, according to the minutes.

“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% inflation objective, perhaps making higher inflation more entrenched,” according to the minutes.

Since the policy meeting, data show that inflation, as measured by the consumer price index, slowed in January to a lower-than-forecast 2.4% from 2.7% in December.

So-called core inflation, which excludes volatile food and energy prices, cooled to 2.5% last month from 2.6% in December, the Bureau of Labor Statistics said Friday.

Energy prices fell 1.5% in January while shelter prices rose 0.2%, fueling inflation more than any other category, according to BLS.

“We saw some progress, but we saw some warning,” Chicago Fed President Austan Goolsbee said Tuesday, noting that inflation in services remains too high, as does core inflation.

“I want to get some more information,” Goolsbee said.

Yet if inflation pressure fueled by Trump administration tariffs proves transitory and shows signs of steadily falling, “I still think there’s several more rate cuts that can happen in 2026,” he said in a CNBC interview.

The labor market and economic growth show recent signs of aligning more favorably with Fed objectives.

Unemployment fell last month by 0.1 percentage point to 4.3%, according to the BLS, as employers added 130,000 jobs in a hiring surge that far exceeded expectations.

Also, the economy probably grew at a 3.6% annual rate during the fourth quarter of 2025, the Atlanta Fed said Wednesday. The district bank in early January estimated 2.7% growth.

For all of 2026, Fed officials in a median estimate in December forecast that gross national product will grow 2.3% after a 1.7% gain in 2025.

Industrial production last month rose 0.7%, the most since February 2025, according to central bank data released Wednesday. Manufacturing output, which makes up all but about 25% of industrial production, increased 0.6%, also the fastest pace since last February.