Fed Divided But Patient: January FOMC Minutes Signal Cautious Path Ahead

The January 27–28, 2026, FOMC minutes show a Federal Reserve increasingly split on the next policy steps, even as the federal funds rate was kept unchanged at 3.50%–3.75% in a 10–2 vote. Many officials today consider this level as approaching neutral rather than obviously limiting, which mirrors a change as past economic risks have lessened. Though the Fed pointed out rising gaps between higher- and lower-income homes, economic activity was described as robust, fueled by strong business investment, especially in technology and AI as well as by steady consumer spending.

Conditions in the labor market were seen as more balanced, with unemployment stabilizing at about 4.4%, small job gains, and rather low layoffs, therefore relieving earlier concerns of a sharp employment downturn. With officials pointing to tariffs on core products as one cause for continued high price pressure, inflation nevertheless stayed above target at around 2.8%–3.0%. A more evenly balanced risk perspective than in past meetings was framed by this combination of steady growth, a cooling yet not weak labor market, and persistent inflation.

On policy, most participants still expect that further rate cuts could be appropriate if inflation continues to move credibly toward the 2% target, but a notable minority argued for holding rates where they are—or even hiking—if disinflation stalls. Emphasizing sensitivity to both inflation and job results, the Committee highlighted a data-dependent strategy with no fixed pathway for rates. Financial markets mostly took the minutes in stride, with little change in projections for one to two cuts in 2026, consistent Treasury yields, and equity profits outside of major tech. Simultaneously, financial stability issues highlighted by authorities included high asset valuations, leverage in the artificial intelligence industry, and growing private credit risks.