Warsh-era Fed minutes reveal stark division on rate path

Half of policymakers see rate hike by year-end

WASHINGTON — The Federal Reserve’s rate-setting committee released minutes Wednesday from its June 16-17 meeting that showed a central bank roughly split over inflation’s trajectory and the likely direction of interest rates through the end of the year.

The minutes, the first issued under Chair Kevin Warsh — who was appointed by President Donald Trump earlier this year to succeed Jerome Powell, whose term ended in May — reported that “many” of the Fed’s 19 officials said the key rate would remain unchanged from or slightly below its current 3.6% by December. But “many” also said it would likely be higher.

Forecasts released after the meeting showed the 18 policymakers who submitted projections about evenly divided: half supported lifting rates by the end of the year, half supported keeping them unchanged or reducing them. Warsh did not submit a forecast, the minutes noted, reflecting his view that doing so can lock policymakers into a specific approach that is harder to change if the economy shifts direction.

A few officials believed there was “a case for raising” the rate at the June meeting, according to the minutes, but agreed to keep it unchanged in a unanimous 19-0 vote. The minutes do not disclose which officials supported which positions.

The division stems from contrasting views on whether inflation will ease as the geopolitical shock of the U.S.-Israel attack on Iran in late February recedes, or whether massive investment in the artificial intelligence buildout will keep prices rising, officials said. The conflict drove inflation to a three-year high of 4.2% in May. Gas prices have fallen back since and inflation is likely to cool when June’s figures are reported next week, the minutes indicated.

But many officials expressed concern that the AI buildout would sustain upward price pressure. “Many participants noted that ongoing strong demand for AI infrastructure would likely sustain upward pressure on prices for technology products and electricity,” the minutes said.

The AI buildout is pushing up prices for semiconductors and computer equipment, the officials said. Apple last month said it would increase prices on laptops and iPads because of more expensive memory chips.

Another concern highlighted in the minutes: whether Americans are increasingly expecting prices to stay high. The Federal Reserve Bank of New York reported Tuesday that its measure of consumer expectations for inflation one year from now rose to 3.7%, the highest in nearly three years. Expectations for inflation in three years rose to 3.3%, a four-year high.

Most Fed officials, including Warsh, said they closely monitor expectations, though many put more weight on financial market measures, which have been lower and more stable than consumer surveys.

During a news conference June 17, Warsh emphasized that the Fed will return inflation to its 2% target, which the central bank has missed for more than five years. His comments were interpreted by economists and Wall Street investors as evidence that the Fed could hike rates later this year.

Warsh replaced Powell, who remains on the Fed’s policymaking committee serving a term as a governor that lasts until January 2028. Trump had repeatedly criticized Powell for not reducing borrowing costs quickly enough, but for now there’s little sign Warsh is moving to cut rates.