Fed Turns Cautious on Rate Cuts, Setting Up High-Stakes Showdown With Trump’s Pick Kevin Warsh

The U.S. central bank is sending a message markets didn’t expect: interest-rate cuts are no longer a foregone conclusion.

Minutes from the Federal Reserve’s late-January policy meeting reveal officials growing increasingly wary of easing too soon—and in some cases even discussing whether rates might need to rise again if inflation proves stubborn. The shift signals a central bank moving further away from consensus on cuts just months before a leadership transition that could reshape U.S. monetary policy.

At the center of the unfolding drama is the Federal Reserve, which now finds itself navigating not only economic uncertainty but also political pressure and an impending change at the top.

During the Jan. 27–28 meeting, policymakers voted 10–2 to hold the benchmark federal funds rate steady at 3.5%–3.75%. While two governors dissented in favor of a quarter-point cut, the broader tone leaned cautious.

The minutes showed:

In fact, some participants raised the possibility that policy might need to tighten again if price pressures fail to cool—an idea that would have seemed unlikely just months ago.

Gregory Daco, chief economist at EY-Parthenon, described the record as carrying a “distinctly more hawkish tilt,” signaling a central bank increasingly comfortable with patience rather than stimulus.

The evolving stance could put the Fed on a collision course with Donald Trump, who has repeatedly urged policymakers to lower borrowing costs to support growth.

Just two days after the January meeting, Trump announced his intention to nominate Kevin Warsh—a former Fed governor widely seen as more sympathetic to lower rates—to succeed Jerome Powell when Powell’s term ends in May.

The administration argues inflation is already stabilizing and that rate cuts would provide relief to businesses and homeowners. But the Fed’s internal debate suggests policymakers are not yet convinced.

Because rate decisions are made collectively, Warsh—if confirmed—would inherit a committee where many members remain focused on guarding against renewed inflation rather than stimulating demand.

Recent data has complicated the picture further.

According to the Bureau of Labor Statistics:

This combination—steady hiring, resilient growth, and only gradual disinflation—gives policymakers justification to wait before cutting rates again.

Fed officials have increasingly emphasized that a stable economy provides room for patience, rather than urgency, in adjusting policy.

Traders have already begun recalibrating expectations. Earlier forecasts of rapid easing have faded, with futures markets now pointing to June as the earliest plausible window for a rate reduction—coinciding with what could be Warsh’s first meeting as chair.

Yet even that timeline remains uncertain if inflation progress stalls.

The January minutes also removed earlier language warning about downside risks to employment, reinforcing the view that the Fed sees less need to rush toward accommodation.

Historically, leadership changes at the Fed have been gradual affairs. This one may be different.

Warsh could assume control of a central bank:

The result is a rare test of how much influence a new chair can exert over a committee whose views are already firmly formed.

The January meeting did not produce a dramatic shift in rates—but it did something arguably more significant. It exposed a Federal Reserve increasingly reluctant to promise cuts and willing to tolerate higher borrowing costs for longer.

That stance raises the odds of tension between the White House’s pro-growth agenda and the Fed’s inflation-fighting mandate, just as new leadership prepares to take the helm.

For markets, the message is unmistakable: the path of U.S. interest rates in 2026 will depend less on political wishes and more on whether inflation truly retreats.

And until that answer becomes clear, the world’s most influential central bank appears content to wait.