Investors and the White House may be betting on multiple interest-rate cuts this year, but the Federal Reserve just delivered a warning: The next move could be up, not down.

Minutes of the January Federal Open Market Committee released Feb. 18 show several Fed officials discussed the possibility of raising interest rates if sticky inflation remains above the Fed’s 2% target.

That’s right: a resumption of interest-rate hikes if the nation’s labor market continues to stabilize but inflation persists.

 “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 if inflation remains at above-target levels,” the minutes said.

Liz Ann Sonders, chief investment strategist at Charles Schwab, told CNBC after the FOMC minutes were released that she “wouldn’t rule out” rising inflation.

“There is a risk inflation could tick up,’’ she said, adding that Schwab has moved its forecast of a second rate cut to later in 2026.

TheStreet/Federal Reserve Bank of New York

FOMC January meeting holds rates steady

The FOMC voted 10-2 to hold interest rates steady at 3.50% to 3.75% in January on the benchmark Federal Funds Rate after three continuous cuts of 25 basis points in its last three meetings of 2025.

The Federal Funds Rate guides interest rates for investors and consumers on auto and student loans, home-equity loans and credit cards.

For consumers, a delayed rate cut could mean higher borrowing costs that remain in place longer than expected.

President Donald Trump and other White House officials have repeatedly demanded that the independent central bank slash rates to as low as 1% immediately.

Fed Governors Stephen Miran and Christopher Waller dissented on the January pause, saying they would have preferred a 25-basis-point cut due to softening in the labor market. 

It was the FOMC’s first pause since July 2025.

How the Fed manages interest rates 

The Fed’s dual congressional mandate requires it to balance inflation and job growth via interest rates.

  • Lower interest rates support hiring but can fuel inflation.
  • Higher rates cool prices but can weaken the job market.

The two goals often conflict, operate on different timelines and are influenced by unpredictable global events. 

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  • Fed Chair Powell sends frustrating message on future interest-rate cuts

After the December rate cut, Fed Chair Jerome Powell said that the lowering of rates brought monetary policy “within a broad range of neutral.”

A neutral rate neither stimulates nor restrains economic growth.

Following the January meeting, Powell described the U.S. economy as “resilient” and said the Fed was well positioned to consider future changes in monetary policy.

“The economy has once again surprised us with its strength, not for the first time,” Powell said.

When the Fed last paused interest rates

The Fed last paused interest rates in September 2023, holding the funds rate at 5.25% to 5.50% after a rapid tightening cycle aimed at curbing post-pandemic inflation.

The pause lasted nearly a year as policymakers wanted to see whether higher borrowing costs would tame inflation without tipping the economy into a recession.

During that pause, inflation gradually cooled and the labor market remained resilient.

The central bank resumed cutting rates in September 2025 once Fed officials became confident that inflation was moving sustainably toward the Fed’s 2% target.

FOMC minutes show a divided Fed

The FOMC minutes do not name the participants. But a “vast majority” judged that employment risks have eased, leaving inflation and tariff implications to the growing concern of the central bank.

Additional policy actions will be considered on a “month-by-month” basis, the minutes said, underscoring that the next move is not guaranteed to be an interest-rate cut.

But there is a possibility of further easing.

“In considering the outlook for monetary policy, several participants commented that further downward adjustments to the target range for the federal funds rate would likely be appropriate if inflation were to decline in line with their expectations,” the minutes said.

Latest economic updates since the January FOMC

The Fed is cautious about cutting rates too quickly out of concern it may be sending the wrong signal about its commitment to its 2% target. 

Simultaneously, policymakers don’t want to damage the labor market which showed significant signs of cooling late last year.

Inflation and employment data published since the Fed’s January meeting show accelerating growth, slowing inflation and a stabilizing labor market. 

  • Overall inflation unexpectedly dropped to 2.4% in January from the same time last year. That was down from the previous 2.7% annual pace.
  • Core inflation, which filters out volatile food and energy prices, ticked down to 2.5% on a year-over-year basis. It last stood at 2.6%.
  • The Fed’s preferred inflation gauge — Consumption Expenditures Price Index (PCE) — will be released Feb. 20. 

Related: Fed official signals surprise rate-cut shift

Since the Consumer Price Index rose less than expected last month, it may have addressed concerns of some Fed policymakers that inflation may be too high to cut interest rates more than once this year, especially after the hot January jobs report was much stronger than expected.

The January jobs report on Feb. 11 delivered a sharp upside surprise, complicating expectations for Fed interest-rate cuts and reinforcing the view that the U.S. labor market remains more resilient than policymakers anticipated.

  • Payrolls rose by the most in more than a year to 130,000, beating estimates of 55,000.
  • Theunemployment rate unexpectedly fell to 4.3% from 4.4%.

Some Fed officials urge patience

At the January meeting, participants debated whether their focus should be on supporting the labor market or on bringing inflation closer to its 2% target.

“Some participants commented that it would likely be appropriate to hold the policy rate steady for some time as the Committee carefully assesses incoming data, and a number of these participants judged that additional policy easing may not be warranted until there was clear indication that the progress of disinflation was firmly back on track,” the minutes said.

Since that January meeting, several Fed policymakers have maintained that an overall stable economy provides sufficient reasons to be patient before creating further interest-rate actions.

They include Fed Governor Lisa Cook, Dallas Federal Reserve President Lorie Logan and Cleveland Federal Reserve President Beth Hammack.

“We feel the costs of elevated inflation with every shopping trip. The longer that inflation remains at these levels, the greater the risk that it becomes entrenched in the economy,’’ Hammock said.

When will the next rate cut take place?

In short, economists and market strategists broadly emphasized caution from the FOMC, saying the minutes indicate rate cuts are not imminent and that persistent inflation could even resurrect the case for future rate hikes.

There is still a month of economic data, including the February jobs, CPI, and CPE reports, to be released before the March FOMC meeting.

The CME Group FedWatch tool reports the likelihood of a quarter basis point cut in the upcoming 2025 FOMC meetings as:

  • March 18: 5.9% 
  • April 29: 20.5%
  • June 17: 49.2%
  • July 29: 45.5%
  • Sept. 16: 36.1%
  • Oct. 28: 35.6%
  • Dec. 9: 32.6%

The numbers moved slightly downward after the FOMC minutes were released.

Related: Traders pivot Fed rate cut bets after CPI surprise