Fed Division in Focus: What the Latest Minutes Say About a Potential 2026 Hike

The January policy meeting minutes from the Federal Reserve have been released, and the outlook appears more cautious as policymakers remain divided on the path ahead. While rate cuts are still being considered, officials are also open to holding rates steady for longer than expected. Notably, markets were surprised by language that leaves the door open for a potential rate hike scenario in 2026.

According to the minutes, inflation remains somewhat elevated, even as recent indicators point to solid economic growth. Members of the Federal Open Market Committee observed that job gains have moderated and the unemployment rate has begun to stabilize.

Against this backdrop, the committee unanimously voted to maintain the federal funds rate within the 3.5%–3.75% range at the January 2026 meeting. Many officials believe that after last year’s 75-basis-point rate cuts, the current policy stance is now close to neutral.

However, some participants favored further easing, arguing that policy may still be meaningfully restrictive and warning that downside risks to the labor market could outweigh the threat of persistently high inflation.

The minutes noted that several policymakers would support additional rate cuts if inflation continues to decline in line with expectations. At the same time, others emphasized the need to keep rates unchanged until there is clear evidence that disinflation is firmly back on track.

The key surprise was the committee’s acknowledgment of upside risks. Several participants indicated they preferred a two-sided policy outlook, highlighting that rate hikes could become appropriate if inflation remains above target — a scenario that markets had largely not priced in for 2026.