The Fed’s on hold. The Fed’s on hold. The Fed’s on hold.

Is the message getting through?

If not, minutes from last month’s FOMC meeting, released on Wednesday afternoon, drove home the point. Progress towards the Fed’s 2% inflation target “slowed over the past year,” the account of the gathering read. Although “most participants” were encouraged by decent PCE outcomes in November and December (remember: The Fed targets PCE prices, not CPI), “many participants” were adamant they need “additional evidence” to be convinced inflation’s truly on a path to settle “sustainably” at or near 2%.

Such evidence certainly wasn’t on offer in the January CPI report, which was quite concerning. Fortunately for the Fed, PPI figures released the following day offered an ostensibly constructive read-through for January’s PCE price tally, even as wholesale inflation ran above estimates on the headline.

There was some mention in the minutes of progress on housing services inflation, and officials reckon “market-based measures of core non-housing services inflation” are moving in the right direction as well. Of course, the CPI-derived “supercore” measure for January was a veritable disaster, printing a 0.8% MoM increase but, again, the Fed doesn’t target CPI and anyway didn’t have that number when they convened last month.

Another thing Jerome Powell and co. didn’t have at last month’s meeting was concrete information about the tariff timeline. Donald Trump announced, and then unannounced, steep levies on Canada and Mexico within days of the Fed deliberations. The word “tariff” came up just one time in the minutes (here: “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”), but the term “trade” received several mentions.

Consumer price growth will be “similar” in 2025 to 2024, and staff’s “placeholder assumption for trade policy put upward pressure on inflation this year,” the Fed said, adding that “the risks around the baseline projection for inflation were seen as skewed to the upside because core inflation had not come down as much as expected in 2024 and because changes to trade policy could put more upward pressure on inflation than the staff had assumed.”

Later in the minutes, “changes in trade and immigration policy” were flagged as “having the potential to hinder the disinflation process,” and “a few” officials had the audacity to suggest “the current target range for the federal funds rate may not be far above its neutral level.”

That latter bit’s important: Some Fed officials suspect policy’s either already neutral or very close to it, which is to say additional rate cuts from here risk taking policy into stimulative territory. That’s precisely what I meant last week when I wrote: “Add 2% inflation to the highest six long run dots from the December SEP and tell me how restrictive policy is.”

Oh, and “a couple” of officials said it may be difficult in the months ahead to differentiate between inflation that would’ve been present anyway and “more temporary changes that might be associated with the introduction of new government policies.” Stripped of the niceties: The Trump administration’s going to muddy already murky waters.

For what it’s worth, fund managers polled for the February vintage of BofA’s monthly survey generally expect two cuts this year. The distribution’s shown below.

More than three-quarters expect at least one more cut from the Fed, while just one in five think they’re done. Virtually no one expects a hike.

Last week, Trump said the Fed should get rates lower posthaste. Rate cuts, he shrieked on social media, “would go hand in hand with upcoming tariffs!!!” That’s the very last thing the Fed wants to hear.

Finally, it’s worth noting that the debt ceiling standoff looks like it could be the end of QT. “Regarding the potential for significant swings in reserves over coming months related to debt ceiling dynamics, various participants noted that it may be appropriate to consider pausing or slowing balance sheet runoff until the resolution of this event,” the minutes read.