Fed officials back rate-cut pause as inflation concerns linger

[NEW YORK] Several US Federal Reserve officials speaking on Thursday (Jan 15) signalled a willingness to pause interest-rate cuts at their upcoming policy meeting, citing a labour market that appears to be stabilising and ongoing inflation pressures.

Five presidents of regional Fed banks, who in recent months have found themselves on opposite sides of the policy debate, indicated the US central bank is now well positioned to wait for more data before acting again. The Fed is widely expected to leave its benchmark unchanged at its Jan 27 to 28 meeting, following rate cuts at each of its last three gatherings.

The comments follow reports over the last week showing the unemployment rate ticked down to 4.4 per cent in December, halting a string of increases in previous months, and inflation data suggesting the Fed’s preferred measure may still be close to 3 per cent, a full percentage point above its target.

“The most important thing facing us is we have got to get inflation back to 2 per cent,” Chicago Fed president Austan Goolsbee said on Thursday, citing concerns from businesses across his district over rising costs and affordability.

The Chicago Fed chief added that he had put aside previous concerns about the labour market, saying uncertainty had prompted businesses to slow hiring but not to make large-scale layoffs.

Goolsbee dissented against the rate cut at the Fed’s last meeting in December, along with his counterpart in Kansas City, Jeff Schmid. At an event on Thursday, Schmid reiterated his case against more cuts, arguing some cooling in the labour market “is likely necessary to keep the inflation outlook from worsening”.

Investors do not expect another rate cut before June, according to futures. The Fed’s latest set of projections, published in December, showed officials see just one quarter-point reduction in 2026, according to their median estimate.

Some Fed officials who supported the recent rate cuts also backed a pause in remarks on Thursday. They included San Francisco Fed president Mary Daly, who said in a LinkedIn post that “policy is in a good place”, and Philadelphia Fed president Anna Paulson, who told The Wall Street Journal she was comfortable with holding rates steady this month.

Many of the policymakers continued to offer support for Fed chair Jerome Powell and stress the importance of central bank independence following revelations that the Department of Justice subpoenaed the Fed on Jan 9 over Powell’s 2025 congressional testimony regarding a building renovation project.

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In an extraordinary videotaped statement released on Sunday, Powell called the renovations a “pretext” for an investigation aimed at pressuring the central bank into more rate cuts, something US President Donald Trump has pushed for relentlessly since returning to office last year.

“We don’t need to be in a rush to run anywhere,” Atlanta Fed president Raphael Bostic said at an event in Atlanta. “We need to make sure that we stay in a restrictive stance, because inflation is still too high, and those high prices are weighing on so many Americans.” BLOOMBERG