The minutes of the January FOMC meeting didn't break new ground, but underscored the lack of urgency to ease policy further. Despite renewed inertia in inflation and ongoing strength in the economy, policymakers haven't lost faith that the current rate stance is consistent with eventually restoring price stability. But they are increasingly worried that the inflation risks are tilted to the upside, more recently due to the uncertainty around trade and immigration policies. Most glaringly, "Business contacts in a number of Districts had indicated that firms would attempt to pass on to consumers higher input costs arising from potential tariffs." Policymakers also have their eyes on some measures of inflation expectations that have ticked higher, likely due to potential tariffs.

Bottom Line: Policymakers still expect inflation to return to the target over time, but sense the risks are to the upside. That's why they passed on cutting rates again in late January—and why they likely won't be in much hurry to resume easing for a while. We see the Fed waiting until September, assuming most of the tariff clouds have passed and inflation has made some progress toward the target by then.

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