Officials at the Federal Reserve last month agreed that they want further progress on inflation before cutting interest rates again, while also saying President Donald Trump's policies could slow some of their progress, meeting minutes released on Wednesday showed.
During their January 28-29 meeting, Fed officials noted upside risks to the inflation outlook and saw no need for further cooling in the labour market.
“In particular, participants cited the possible effects of potential changes in trade and immigration policy, the potential for geopolitical developments to disrupt supply chains, or stronger-than-expected household spending,” the meeting minutes showed.
“A couple of participants remarked that, in the period ahead, it might be especially difficult to distinguish between relatively persistent changes in inflation and more temporary changes that might be associated with the introduction of new government policies.”
The January meeting was held a week after Mr Trump's inauguration. Since being sworn in, he has either moved or pledged to impose a host of measures that economists generally say would lead to higher inflation, including his tariff and immigration plans.
Officials at the meeting said those policies carry risks, “including downside risks associated with an unexpected weakening of the labour market, a weakening of consumers' financial positions, or a tightening of financial conditions”. A more favourable pro-business environment and stronger domestic spending also carry risks, the minutes showed.
The Fed left its benchmark target range unchanged at 4.25 to 4.50 per cent when it last met. Officials since then have said they need to see further evidence that inflation is cooling before resuming rate cuts.
Last week's inflation readings painted a somewhat disappointing picture for the near-term outlook. The Consumer Price Index (CPI) rose 3 per cent last month on an annual basis and 3.3 cent annually when stripping out food and energy. Both figures were above Wall Street estimates.
“After two good months of inflation data for November and December, January once again disappointed and showed that progress on inflation remains uneven,” Fed governor Christopher Waller, a permanent voting member on the rate-setting committee, said on Monday.
“If this wintertime lull in progress is temporary, as it was last year, then further policy easing will be appropriate. But until that is clear, I favour holding the policy rate steady.”
His remarks largely reflected the sentiment from January's minutes, which showed committee members found it “was well positioned to take time to assess the evolving outlook for economic activity”.
Those inflation readings came as Mr Trump appears to impose further tariffs on imported goods. He said on Tuesday that he is looking at broadening US tariffs to include imports on cars, semiconductors and pharmaceuticals. That followed previous moves to order “reciprocal tariffs” on US trading partners, a levy on steel and aluminium imports, and more tariffs on Chinese goods.
“It will be very important to have a better sense of these policies, how they will be implemented, and establish greater confidence about how the economy will respond in the coming weeks and months,” Fed governor Michelle Bowman, another permanent voting member on the committee, said on Monday.
For now, Fed officials are content to wait on cutting interest rates until they can assess how Mr Trump's policies will affect the US economy. That uncertainty, as well as firmer-than-expected inflation, have led markets to pare back their rate-cut expectations this year. Traders anticipate only one rate cut, according to CME Group data.