Fed Officials Were Split on Rates at Warsh’s First Meeting, Minutes Show
By Jacqueline Policastro | Quincy News Correspondent
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Washington (Quincy News) — The Federal Reserve held interest rates steady at its June meeting, but newly released minutes show a central bank more divided over inflation than the headline decision suggested.
All committee members voted to hold the federal funds rate at its current target range of 3.5% to 3.75%, but the minutes reveal that a few officials believed there was already a case for raising rates. Participants remained divided over the year-end policy path, with some expecting rates to remain at or below current levels and others anticipating additional tightening.
“That split is really not surprising,” said David Mitchell, professor of economics and director of the Bureau of Economic Research at Missouri State University. “Rates should be going up because they’ve got to get inflation under control.”
Mitchell told Quincy News the June minutes leave open the possibility of a rate hike in the future, even if the Fed ultimately stays on hold at its next meeting.
“They should be raising rates,” he said. “But I bet they hold off and wait and see what happens.”
The committee also made notable changes to its post-meeting statement. Members agreed to remove language that had suggested an easing bias, replacing it with an emphasis on the Fed’s commitment to price stability.
Mitchell said the firmer tone could also reflect the Fed’s effort to maintain its independence as President Donald Trump has publicly called on the central bank to lower rates.
“They want to make sure that the Fed remains, and looks, independent,” Mitchell said. Trump is not the first president to pressure the Fed, he added, “but he has made such a public display of it that now they have to respond in a public manner.”
Policymakers said inflation had moved higher and pointed to several drivers: tariffs, supply disruptions tied to the conflict in the Middle East, and demand from the ongoing AI buildout. Several noted that price pressures had broadened across transportation, airfares, petrochemical products and agricultural supplies, while many said strong demand for AI infrastructure was likely to keep pushing up prices for technology products and electricity.
Fed staff raised their inflation forecast for this year and next, trimmed their GDP outlook slightly, and said risks to employment and growth were tilted somewhat to the downside while inflation risks were more skewed to the upside. Staff also warned that inflation could prove more persistent than projected.
Mitchell pushed back on the idea that AI should be viewed only as an inflation problem.
“AI is a productivity story, and productivity usually brings prices down,” he said. “On balance AI is a good thing.”
At the same time, Fed officials did not describe a labor market in retreat. They said unemployment had remained relatively stable, layoffs and jobless claims were steady, and wage growth was broadly consistent with inflation moving back toward target.
Policymakers also noted that the labor market reflected “relatively low dynamism,” and that lower-income households were increasingly relying on credit to maintain spending while facing disproportionate pressure from elevated gasoline and grocery prices.
Mitchell said that tension helps explain why the Fed remains in a difficult spot.
“There is no policy that is going to help everyone and leave no one worse off,” he said. “Getting inflation back down would help in the long run, even though higher rates right now, especially if they are relying on credit, might actually hurt them in the short run.”
The broader economy, Mitchell said, is still moving forward, but without much momentum.
“It’s kind of chugging along, but it’s still trying to get some traction,” he said. “A lot of that has to do with inflation. This is the problem with inflation. It makes long-term decisions really, really difficult.”
The Fed’s next meeting is scheduled for July 28-29.
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