Two big revelations have emerged from the Fed minutes of the latest FOMC meeting. First, the Fed members believe that the disinflation process may take longer than anticipated, and second, some members are of the view that rate hikes might be needed to keep inflation below the 2% target.
Inflation has remained sticky for most of 2025. The all-items index rose 2.4 percent for the 12 months ending January, after rising 2.7 percent for the 12 months ending December. The all items less food and energy index rose 2.5 percent over the last 12 months.
The Fed minutes from the latest FOMC meeting indicate that the central bank may face challenges in implementing aggressive rate cuts, contrary to previous expectations. Many Fed members warned that disinflation could be gradual and uneven, as revealed in the minutes of the FOMC meeting held on January 27-28, where the interest rates were kept unchanged at 3.5%–3.75%. The next US Fed FOMC meeting will be held on March 17-18, where a Summary of Economic Projections, along with the ‘dot plot’ will also be released.
According to the CME Group’s FedWatch tool, markets now price in a 50.6% probability of a 25-basis-point rate cut in June and a 46.3% probability in July.
CME Group’s FedWatch tool shows that in March, rates are 94% likely to remain constant, with an 80% probability that the US Fed would not decrease rates even in April. The April FOMC meeting will be Powell’s final as chair of the US Fed. Kevin Warsh is expected to become the next US Fed chair after Senate approval, and he will lead the FOMC meeting in June for the first time.
The minutes indicated that policymakers were divided on the path for US interest rates, implying that the next chairman may face difficulties in executing rate decreases. The market has somewhat reduced its estimates for Fed rate cuts this year, but they still expect two 25-basis-point reductions before the end of the year.
Several participants also advocated language that explicitly allowed for the possibility of hiking the federal funds rate if inflation remained over the target range. According to the minutes of the January 2026 FOMC meeting, Fed policymakers are split on the direction of interest rates going forward, indicating a conflict between the need to boost the labor market and the need to control inflation.
According to many members, if inflation keeps falling in accordance with their estimates, then further rate cuts could be necessary. Others contended that it could be wise to keep the policy rate the same for a while, and some even said that rate hikes might be required if inflation continues to be consistently higher than expected.