Since the Federal Reserve began cutting rates as inflation cooled, markets and commercial real estate watchers largely assumed the next moves would either be additional cuts or a pause before easing resumed. That assumption is now breaking down.
A rare show of disagreement at last week's Federal Open Market Committee meeting revealed a growing split inside the Fed, with some officials signaling that rate hikes—not cuts—could be back on the table.
Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari and Dallas Fed President and CEO Lorie Logan all supported holding rates steady but opposed language suggesting a shift toward easing. In the days since, their public statements have underscored a sharper pivot in tone.
As The Wall Street Journal's Chief Economics Correspondent Nick Timiraos wrote, the Fed's internal debate has moved from "hinting at cuts, to neutral, to flagging potential hikes."
The FOMC's official statement struck a cautious note: "In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks."
But for some policymakers, even that language leaned too far toward easing.
"This forward guidance was put into the statement to signal a pause rather than an end to the easing cycle," Hammack wrote on May 1. "I see this clear easing bias as no longer appropriate given the outlook."
Economic data has complicated the Fed's path. Growth has remained "resilient" and unemployment has held steady, but inflation pressures persist, including rising oil prices tied in part to geopolitical tensions.
"I am increasingly concerned about how long it will take inflation to return all the way to the FOMC's 2 percent target," Logan wrote.
She also pointed to the Fed's long-running struggle to bring inflation back to target.
"Congress charges the FOMC with setting monetary policy to achieve maximum employment and price stability. The FOMC has repeatedly reaffirmed that a 2 percent personal consumption expenditures (PCE) price inflation rate is most consistent with those mandates," Logan added.
"Yet PCE price inflation has exceeded 2 percent for more than five years."
Kashkari emphasized the uncertainty surrounding global conflict and its economic ripple effects, particularly the war in Iran.
"Given the uncertainty about the path of the conflict [in Iran] and the resulting effects on inflation, employment, and economic growth, I believe the FOMC should offer a policy outlook that signals that the next rate change could be either a cut or a hike, depending on how the economy evolves," Kashkari wrote.
"This could tighten financial conditions somewhat today, pushing back against a high-inflation scenario that could require an even stronger monetary policy response in the future."
Fed Chair Jerome Powell echoed those concerns during his post-meeting press conference, noting that inflation is no longer clearly moving in the right direction.
"You see, inflation has moved up over the interim, a bit core inflation, 3.2 now moving, albeit just a little bit, in the wrong direction," Powell said. "And we know that … there's headline inflation coming out of the Gulf, and we don't know how much that will be. We're going to need to see."
Taken together, the comments mark a meaningful shift in the Fed's posture. Instead of a clear glide path toward lower rates, policymakers are signaling a more uncertain trajectory—one where the next move could just as easily be up as down.
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