Minutes from the January 27–28 meeting of the Federal Reserve reveal a growing divide among policymakers over the future path of interest rates, even as they held the benchmark rate steady at 3.50–3.75 per cent
The minutes of the US Federal Reserve’s January policy meeting reveal a central bank increasingly divided over the path of interest rates, even as officials confront a new variable reshaping the economic outlook: artificial intelligence.
Released on Thursday, the minutes of the January 27–28 meeting of the Federal Reserve show that policymakers were almost unanimous in holding the benchmark federal funds rate steady at 3.50–3.75 per cent. But beneath that broad agreement lies a growing split over what comes next.
A pause—but not consensus
The rate decision itself was widely supported. “Almost all” members backed keeping rates unchanged after 75 basis points of cuts last year, according to the minutes. Two governors—Christopher Waller and Stephen Miran—dissented in favour of a quarter-point cut.
Beyond the hold decision, however, the debate fractured.
“Several participants” said further rate cuts would likely be appropriate if inflation continues to decline in line with expectations. Others argued policy should remain restrictive “for some time” until there is clearer evidence that disinflation is firmly back on track.
More notably, the minutes included explicit discussion of potential rate hikes—a shift in tone from recent meetings. “Several participants indicated that they would have supported a two-sided description” of future rate decisions, reflecting the possibility that rates may need to rise if inflation remains above target.
Inflation remains somewhat elevated, with core price pressures still above the Fed’s 2 per cent objective. While officials acknowledged progress since 2022, most cautioned that the final stretch back to target could be “slower and more uneven” than anticipated.
AI enters the monetary policy calculus
What sets this meeting apart is the depth of discussion around artificial intelligence—both as a productivity catalyst and as a potential source of financial instability.
Participants expected higher productivity growth associated with technological developments to exert downward pressure on inflation. Reports from business contacts suggested firms are automating operations to offset rising costs, potentially limiting price pass-through.
At the same time, policymakers flagged vulnerabilities emerging from the AI boom.
The Fed minutes noted “elevated equity market valuations” in technology firms, increased concentration in a small number of companies, and higher debt financing linked to AI-related infrastructure. Some warned that financing activity in “opaque private markets” warranted close monitoring.
The January meeting was among the last chaired by Jerome Powell before his term ends in May. His successor, former Fed governor Kevin Warsh, nominated by President Donald Trump, will inherit a committee that appears far from united on the appropriate policy trajectory.
Market expectations currently lean toward rate cuts later this year, but the minutes show policymakers are not aligned on the direction of travel.
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