A few Federal Reserve officials thought there was a case to raise interest rates at the June policy meeting. But most saw two paths this year — holding or hiking — according to meeting minutes released Wednesday.
If inflation dissipates, most officials favor holding rates steady or eventually lowering them. However, it's possible that inflation remains elevated due to a combination of a stable job market, strong AI demand, the Middle East conflict, or the effects of tariffs. In that scenario, almost all officials see "some policy firming" — in other words, rate hikes. Several members didn't see the current level of interest rates as restricting the economy, while a few others thought the rates were slightly restrictive.
This is the first release of minutes in the Warsh era of diminished communications. They were published with a three-week lag and look stale now that President Trump has said the ceasefire with Iran is over and suggested he may reimpose a naval blockade.
"We put down the blockade, we may put it back, the blockade, and it'll only be a blockade for Iran," Trump said. However, he also said in a Wednesday press conference overseas that the situation won't drag on.
If fighting resumes, that will pressure oil prices and raise the possibility of higher energy prices cascading into core inflation, which is already on the rise. *Read more: *How jobs, inflation, and the Fed are all related
Several Fed officials commented that price pressures had become more broad-based, with a large share of goods and services — including transportation, airfares, petrochemical products, and agricultural inputs — experiencing substantial increases. Several noted that the services price inflation (excluding housing) index had declined little and remained high.
Three weeks ago, Fed officials anticipated that inflation would remain elevated in the near term and then decline as the effects of tariffs, high energy prices, and supply disruptions diminish.
They still saw upside risk to the inflation outlook, while downside risks to the job market had moderated somewhat. Many thought the job market was not currently a source of inflationary pressures.
Some participants thought productivity gains associated with AI would eventually reduce production costs and increase supply, which should put downward pressure on inflation. However, they noted this effect would likely take time to materialize. The thought aligns with what Kevin Warsh said last year before he was tapped by President Trump to be Fed chair.