Fed Confronts Lingering 2021 Inflation: Policy Outlook Through February 2026

The inflation spike of 2021–2022 continues to shape Fed policy, with the CPI at 2.7% in December 2025—above the 2% target for nearly five years. The Federal Open Market Committee kept the federal funds rate unchanged in January 2026 after three quarter-point cuts earlier in the cycle, citing inflation risks. Fed officials weigh whether to cut further in 2026, balancing labor market weakness and the persistence of core inflationary pressures. Richmond President Thomas Barkin noted inflation has remained above target since 2021, and Atlanta Fed President Raphael Bostic emphasized the need to bring prices back to 2%. Governor Michelle Bowman argues for three rate cuts in 2026, cautioning against immediate action if January data is pulled by seasonal adjustments. Traders price a 66% chance of a June 2026 rate cut based on FedWatch data. The Fed is also reviewing whether one-time factors like tariffs and shelter measurement lags will evolve into sustained inflation. The recent release of 2020 meeting transcripts underscores how policy shifted from prioritizing near-zero unemployment to managing a supply shock-driven inflation risk.