Nine of 18 policymakers expect higher rates by the end of 2026
Traders are leaning toward a US interest-rate increase by September, after minutes from the US Federal Reserve's June meeting showed policymakers split over whether inflation will cool on its own or force borrowing costs higher.
The record of the June 16-17 gathering, released Wednesday, showed nine of 18 US policymakers who submitted projections expect rates to sit slightly higher by the end of 2026, Reuters reported, while the rest favour holding or cutting.
It was the first meeting chaired by Kevin Warsh, whom US president Donald Trump appointed this year to replace Jerome Powell.
The Fed's rate-setting body held its benchmark in a range of 3-1/2 to 3-3/4 percent on a 12 to 0 vote, according to the Federal Open Market Committee statement, where it has stayed all year.
The same statement committed the US central bank to "deliver price stability."
On the operational side, the committee kept the interest rate paid on reserve balances at 3.65 percent, set standing overnight repo operations at 3.75 percent, and fixed reverse repo at an offering rate of 3.5 percent with a per-counterparty cap of US$160bn a day.
The disagreement over what comes next ran deep.
Many participants said the appropriate federal funds rate would be "within or slightly below the current target range" by year-end, the minutes said, according to CNBC.
Many others judged that the rate should sit "above the current target range" at the end of this year.
Warsh characterized the divide as a "family fight" at his post-meeting news conference, CNBC reported.
A few officials argued there was already a case to raise US rates in June, Reuters noted, though they agreed to hold.
Inflation drove the debate.
US consumer prices reached a three-year high of 4.2 percent in May, AP reported, lifted by the war with Iran and earlier by Trump's tariffs.
Policymakers judged that upside risks to price stability remained elevated even as risks to US employment eased, according to Reuters, and several said price pressures had broadened across goods and services.
Some officials expected inflation to recede as energy costs and tariff effects fade, the minutes showed, a view complicated on Wednesday when Trump signalled that a preliminary truce with Iran could collapse, the New York Times reported, reviving the prospect of another energy shock.
A newer worry surfaced too.
"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, as reported by AP, which pointed to US data centres' heavy power needs and Apple's recent move to raise laptop and iPad prices on costlier memory chips.
Warsh, by contrast, has argued artificial intelligence will prove disinflationary as it lifts productivity, according to CNBC.
US consumers appear increasingly braced for higher prices.
The Federal Reserve Bank of New York said Tuesday its one-year inflation expectations measure climbed to 3.7 percent, the highest in nearly three years, per AP, with the three-year reading at a four-year high of 3.3 percent.
The meeting also advanced Warsh's push to reshape how the US central bank communicates.
He has moved to end forward guidance, and the June statement dropped its usual economic commentary and any signal on the next rate move, the New York Times reported.
"A majority of participants remarked that they saw advantages in shortening the statement," the minutes said, according to Reuters, and most backed removing language that had pointed to a coming rate cut.
The minutes themselves were trimmed only modestly, running about 20 percent shorter than recent releases.
Warsh also outlined five task forces to review how the Fed operates, CNBC noted.
US markets barely moved on the release.
Stocks were little changed and Treasury yields pared earlier gains, according to Reuters, while rate-futures traders held their bets on a hike by the September 15-16 meeting.
"There's some ambiguity in the minutes, suggesting several competing views on policy," Jeffrey Roach, chief economist at LPL Financial, wrote in a note, as reported by Reuters.
He added the committee "will not commit to a specific scenario until the incoming data provides necessary clarity."
Powell, meanwhile, remains on the rate-setting committee as a US governor until January 2028, AP reported.
Trump had repeatedly faulted him for not cutting rates faster, though the minutes gave no sign Warsh is preparing to ease.
