Is inflation stirring again? FOMC minutes raise flags

The January Fed minutes, released on Tuesday, read like a reminder that the inflation fight is not over, just quieter than it was in 2022.

Policymakers acknowledged inflation has cooled from its peak, but “most participants” cautioned progress back to 2% could be “slower and more inconsistent than anticipated,” keeping risks tilted the wrong way.

What’s new is the risk balance as officials sounded less worried about a sudden labor-market slide, and more alert to inflation sticking above target for longer.

FOMC minutes: Inflation progress, but warning signs

Incoming inflation data has improved from the worst levels, yet it is still not where the Fed wants it.

The data showed overall PCE inflation running at 2.8% year over year in November, with core PCE (excluding food and energy) also at 2.8%.

By the Fed’s January meeting, Chair Jerome Powell was pointing to 3.0% core PCE inflation over the 12 months ending in December, his blunt way of saying the last mile is proving stubborn.

The minutes and related commentary also spotlighted tariffs as an awkward complication.

Powell said “elevated readings largely reflect inflation in the goods sector,” boosted by the effects of tariffs, while disinflation looked more evident in services.

However, the minutes also noted tariff effects on prices but suggested they should diminish over time.

Labor risks fade, inflation risk lingers

The other shift is tone around jobs.

The Fed’s January statement said job gains had “remained low” and the unemployment rate showed “some signs of stabilization.”

The minutes discussion landed against a backdrop where the unemployment rate was 4.4% in December, unchanged from September.

Critically, the Fed also scrubbed language that had emphasized rising downside risks to employment, an edit several economists read as a signal that the committee is less in “insurance cut” mode.

Powell echoed that framing at the January press conference, saying upside risks to inflation and downside risks to employment had “diminished,” even if they still exist.

That shift matters for markets because it can raise the bar for rate cuts.

The minutes show some officials still see additional cuts as appropriate if inflation falls as projected, but they also reintroduced more explicit two-sided risk language, including that upward adjustments could be warranted if inflation stays above target.

Also Read: Cooling inflation and steady hiring ignite fresh hopes of a US soft landing in 2026

Financial stability: watch the plumbing

The Fed is also keeping an eye on how the AI boom is being financed, because that can shape both demand and risk-taking.

In prior minutes, the Fed’s market staff noted that AI developments were contributing to volatility in the largest tech stocks and that a group of large tech firms had accelerated AI-related capital spending while increasingly relying on debt to finance it.

That kind of backdrop can matter indirectly for inflation as heavy investment can support growth and demand, even as investors debate whether the payoff comes fast enough.

As of the January meeting, the Fed held its benchmark rate in a 3.5%–3.75% target range.

Outside commentary noted there were two dissents in favor of a cut, but the core message was that policy is not on a preset path.

Powell explicitly said policy is “not on a preset course,” and the minutes underscored the same conditional approach: easing depends on clearer evidence that disinflation is firmly back on track.