The Fed’s signal rate increases are likely if inflation remains higher than the target
Lonski Group President John Lonski weighs in on the Federal Reserve’s next rate decision, President Donald Trump’s expected economic speech and the president’s call for credit card interest rates in ‘Varney & Co.
The Federal Reserve Policymakers were largely unanimous in the decision to leave interest rates unchanged despite two calls for cuts, although many indicated that rate hikes may be on the table if inflation continues to be high.
The minutes of the January meeting of the Federal Open Market Committee (FOMC), the Fed’s monetary policy-setting panel, were released on Wednesday and showed that some policymakers agreed with the inclusion of language indicating that future rate hikes may be reduced. stubborn inflation in the announcement.
The FOMC voted 10-2 to leave the federal funds rate at its current range of 3.5% to 3.75%, with Fed governors Christopher Waller and Stephen Miran arguing over concerns about the labor market. Inflation remains above the Fed’s 2% target, giving some pause about further rate cuts.
“Several participants indicated that they would support a two-sided interpretation of the Committee’s future interest rate decisions, indicating the possibility that an upward adjustment in the target range of the federal funds rate may be appropriate if inflation remains at levels above the target,” the FOMC minutes noted.
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Federal Reserve Chairman Jerome Powell said inflation would be closer to 2% but for the effects of taxes. (Jim Watson/AFP/Getty Images)
The minutes also noted several policymakers “noted that some adjustments are falling short of the target range the federal funds rate it may be appropriate if inflation were to fall in line with their expectations.”
“Some participants noted that it may be appropriate to hold the policy rate tight for some time as the Committee carefully evaluates incoming data, and most of these participants determined that further policy expansion may not be warranted until there are clear indications that disinflation progress is firmly back on track,” the minutes said.
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Fed Governor Stephen Miran was one of the policymakers who opposed the Fed’s decision to leave rates unchanged. (Michael Nagle/Bloomberg/Getty Images)
The Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) index, was raised above the 2% long-term inflation rate at the end of last year.
PCE inflation was at its lowest level for the year in 2025 when it fell to 2.2% in April, which was the lowest reading since September 2024. Core PCE, which excludes variable food and energy prices, was 2.6% in April 2025, the lowest rate since June 2024.
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I Trump administration tax announcements “Liberation Day” in early April and the implementation of those import taxes contributed to the rise in inflation last year, which drove PCE higher.
The latest PCE inflation reading was for the month of November, when it reached 2.8%, equaling the September reading, which was the highest level since October 2023. Core PCE was also 2.8% in November.
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The chairman of the Fed Jerome Powell he said in his January press conference after the FOMC’s decision that core PCE inflation would run “just above 2%” if not for the effects of commodity prices.
