If you thought the Federal Reserve was a unified machine moving markets with surgical precision, the minutes from its January meeting just shattered that illusion.
Released Wednesday, the readout from the January 27-28 FOMC meeting reveals a central bank that can’t agree on the most basic question in finance right now: should interest rates go up, down, or stay put?
“Several” officials indicated they could support rate hikes if inflation remains elevated. Others want further cuts if inflation cools as they expect. And the full committee is wrestling with something entirely new: how artificial intelligence might reshape the economy in ways nobody fully understands.
The Fed held rates steady at 3.50%-3.75% — that part was nearly unanimous. But beyond that decision, opinion fractured dramatically. Some officials said rates need to stay on hold “for some time,” with a subset arguing cuts may not happen at all until “disinflation is back on track.” Others maintained their baseline outlook includes further reductions. And a couple of Fed Governors — Waller and Miran — actually dissented in favor of an immediate cut.
What makes these minutes different from the usual Fed boilerplate is the AI debate. Several policymakers expect productivity gains from artificial intelligence to put downward pressure on inflation — essentially arguing that AI will do the Fed’s job for it. But the staff sees it differently: strong economic growth is “outpacing potential,” which means tighter resource utilization and higher inflation, not lower. Meanwhile, “opaque private markets” tied to AI investment are raising financial stability concerns.
This internal chaos arrives at the worst possible time. Fed Chair Jerome Powell is leaving in May. President Trump’s pick to replace him — former Fed Governor Kevin Warsh — has already signaled he wants rate cuts. But convincing a committee this divided won’t be easy. “Policymakers are going in opposite directions with inflation still above the Fed’s target,” noted David Russell of TradeStation. “They can’t even agree on whether the current rates are restrictive or neutral.”
Markets are currently pricing no rate changes until June — expected to be Warsh’s first meeting at the helm — with quarter-point cuts anticipated there and in September. But with inflation still running about a percentage point above the 2% target, and “several” officials openly floating the idea of rate increases, the path from here is anything but certain.
For investors, the takeaway is straightforward: don’t bank on a predictable rate-cut timeline. The Fed is split, the data is mixed, AI is rewriting the economic playbook in real time, and a leadership transition adds yet another wildcard. Position your portfolio for uncertainty, not for the rate cuts Wall Street keeps hoping for.