The Federal Reserve’s January meeting minutes have revealed a shift in the committee’s thinking, with several members expressing the view that “upward adjustments” to interest rates could be appropriate if inflation remains above-target levels. This marks a departure from the Fed’s previous stance, which was characterized by a one-sided outlook for policy.

According to the minutes, the committee is concerned that the pace of disinflation is slowing down, with “most” members worried that progress towards the 2% target is slowing and acknowledging a “meaningful” risk that inflation could persist above target. This suggests that the Fed may be reassessing its approach to monetary policy in light of changing economic conditions.

The labor market was also a focus of discussion, with “the vast majority” of participants acknowledging that downside risks to the labor market have diminished, but noting that the overall direction of travel remains downward. This suggests that while the Fed may be willing to consider loosening policy further, it is unlikely to do so without first assessing the impact of previous cuts on the labor market.

On the policy front, several members expressed the view that it would be appropriate to lower rates further if inflation slows as expected, but some also noted that lowering policy any further risks indicating a de-prioritization of the inflation component of the Fed’s mandate. This suggests that the Fed may be taking a more balanced approach to monetary policy in light of changing economic conditions.

Markets are currently pricing in 55 basis points of cuts for this year, with the January minutes not reading like a two-cut Fed. December’s dot plot was a one-cut Fed, and there are arguments in the minutes that there could be a world where the next move might be a hike. This suggests that the Fed may be considering a range of options in response to changing economic conditions.

Overall, the Fed’s January meeting minutes suggest that the committee is taking a more nuanced approach to monetary policy, with a greater emphasis on balancing the inflation and labor market components of its mandate. While the minutes do not necessarily indicate a change in the Fed’s overall stance, they do suggest that the committee is willing to consider a range of options in response to changing economic conditions.