Federal Reserve officials see higher bar for cuts with sticky inflation , low unemployment

wwmt.com · Feb 19, 2026 · Collected from GDELT

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WASHINGTON (TNND) — Most Federal Reserve officials will be resistant to supporting further cuts to interest rates this year without sustained progress on inflation, based on minutes from last month’s meeting.Minutes from the January meeting showed a majority of the Federal Open Market Committee wants to see more progress on inflation before agreeing to reduce borrowing costs. That process could take months with effects of last year’s tariffs still working through the supply chain and sustained consumer spending giving businesses little incentive to lower prices.Some officials were even willing to support language that described rate increases as just as likely as cuts.“Several participants indicated that they would have supported a two-sided description of the Committee's future interest rate decisions, reflecting the possibility that upward adjustments to the target range for the federal funds rate could be appropriate,” the minutes say.Fed chair Jerome Powell said after the meeting that rate hikes were not “anybody’s base case,” but the language highlights the divide over what end of the dual mandate of stable prices and maximum employment faces greater risk.Officials held their benchmark interest rate steady after the January meeting at a range of 3.5% to 3.75% in a 10-2 decision, which came after three consecutive cuts to end 2025. Powell said they were in a position to see how the economy unfolds and signaled there was little urgency to keep reducing rates.Markets are anticipating another hold at the March meeting with a 6% chance of a quarter-point reduction, according to the CME FedWatch tool. Investors have priced in two cuts this year and expect both to come after Powell’s term as chair expires in May.“The odds of a rate increase are low, as most signs point to sustainable disinflation over 2026. That said, dovish arguments around the fragility of the labor market aren't as strong as before, given recent signs of a turnaround,” Bernard Yaros, lead U.S. economist at Oxford Economics, wrote in a report.President Donald Trump has forcefully advocated for the Fed to lower rates and nominated former Fed Governor Kevin Warsh to replace Powell once his term as chair ends. Warsh has recently advocated for lowering borrowing costs but will be walking into a committee with a hawkish tilt toward inflation if confirmed by the Senate.Data released since the January meeting is likely to reinforce the position of officials who aren’t in a rush to continue lowering rates.The labor market showed signs of strength with a gain of 130,000 jobs in January that surpassed most economists’ expectations after hiring slowed to a crawl in 2025. Unemployment also dropped to 4.3%, helping soothe concerns about a tumbling labor market in need of support from the Fed.But revisions to previous data also showed job growth was even weaker than initially thought, totaling just 181,000 for all of 2025. It was the slowest year for hiring since 2020 and less than half of the initially reported level of 584,000.Inflation is still above the Fed’s target rate of 2% even though the January reading of the consumer price index neared a five-year low of 2.4%. But beneath the headline figure, economists see price pressures on a range of goods and services that will be harder to address.Goods excluding food, energy and used cars had the biggest gain since 2023 and prices for services are also sticky. Fed officials will get a clearer reading on price changes on Friday with the release of the personal consumption expenditures index, the central bank’s preferred reading of inflation.“It's hard to move down in this environment because although inflation went to 2.4%, core inflation remains hot,” said Mark Williams, a finance lecturer at Boston University’s Questrom School of Business and former bank examiner at the Fed. “You have inflation that's not really going down, and you have certain categories in particular where you saw inflation up.”Officials have signaled for weeks that the bar for more cuts is high as long as the labor market remains stable. The U.S. economy is expected to continue growing at a solid pace in 2026, increasing risk of inflation staying sticky even if tariff price pressures ease by supporting demand pressures.“Looking ahead, it is reasonable to forecast that tariff effects on inflation will begin to abate later this year, but there are many reasons to be concerned that inflation will remain elevated,” Fed Governor Michael Barr said during a Tuesday speech. “It will likely be appropriate to hold rates steady for some time as we assess incoming data, the evolving outlook, and the balance of risks.”The minutes said most officials noted progress toward lowering inflation “might be slower and more uneven than generally expected.” The Fed’s formal target is 2% and officials have committed to reaching that goal, but there are questions about whether inflation could ultimately settle above that.“One of the questions is should the Fed now start thinking about a target rate, which is maybe 2.25% — that's the true target rate. It will be a long time before the Fed gets back to a 2% target,” Williams said. “Maybe we just have inflation embedded in our economy, which makes 2.25 the right target number. That's kind of a scary thought, because then that means we have inflation for a long time.”