Fed officials are divided over the future path of interest rates, reflecting a tension between the need to contain inflation and the desire to support the labor market, according to the minutes of the January 2026 FOMC meeting. Several participants indicated that further reductions in the fed funds rate would likely be appropriate if inflation continues to decline in line with their expectations. Others argued that it may be prudent to hold the policy rate steady for some time and some even raised the possibility that rate increases could become necessary if inflation remains persistently above target. In addition, a vast majority of participants judged that downside risks to employment had moderated in recent months while the risk of more persistent inflation remained. The Fed left the federal funds rate unchanged at the 3.5%–3.75% target range in its January 2026 meeting, in line with expectations, after three consecutive rate cuts last year.
