Federal Reserve meeting minutes: Some officials support raising interest rates in June, but disagreements are actually "waiting for data"
In the early hours of Thursday morning Beijing time, the Federal Reserve released the minutes of the first interest rate meeting chaired by new chairman Kevin Warsh. The outside world got a glimpse of how Fed officials started to "quarrel like family members": some officials said that there was reason to raise interest rates last month, and officials were evenly divided into two equally divided groups on their predictions of the future economic direction. (Source: Federal Reserve) Meeting minutes showed that Fed officials assessed that “upside risks to price stability remain elevated,” in part due to rising prices due to supply shocks in areas such as energy.
In the early hours of Thursday morning Beijing time, the Federal Reserve released the minutes of the first interest rate meeting chaired by new chairman Kevin Warsh. The outside world got a glimpse of how Fed officials started to "quarrel like family members": some officials said that there was reason to raise interest rates last month, and officials were evenly divided into two equally divided groups on their predictions of the future economic direction. (Source: Federal Reserve) The minutes of the meeting showed that Fed officials assessed that "upside risks to price stability remain elevated," in part due to rising prices caused by supply shocks in areas such as energy. As a result, a handful of participants indicated that an increase in the target range for the federal funds rate was warranted in light of these developments, but these officials ultimately supported maintaining current policy at this meeting. Most participants emphasized their preference not to repeat the wording of the previous resolution, which had hinted at an easing bias in the possible direction of future interest rate decisions. Officials are more divided over their predictions of future economic trends. On the outlook for inflation, the Fed is not unilaterally hawkish. Most officials still expect inflation to gradually fall from recent highs as tariffs, energy and supply chain shocks subside; but many officials worry that the AI investment boom, high commodity prices and supply disruptions may make inflation more sticky. The minutes also showed that officials were particularly concerned about whether prolonged high inflation would erode inflation expectations and affect wage and price-setting behavior. Therefore, participants "made their own personal assessments of appropriate monetary policy under what each considered the most likely economic scenario." Many participants said that by the end of the year, the appropriate level of the federal funds rate would be within the current target range, or slightly below it. However, many other participants believed that the appropriate level for the federal funds rate by the end of the year would be above the current target range. At the policy meeting held on June 16-17, all voting committees voted unanimously to keep the policy rate range at 3.5% to 3.75%. The economic forecast released after the meeting showed that 9 of the 19 officials believed that interest rates would need to be raised at least once this year, and 6 of them believed that interest rates would need to be raised twice; another 9 officials expected that interest rates would remain unchanged or that interest rates would be cut. Warsh, who has always scorned "forward guidance," refused to submit his own forecasts. The minutes, which have varying views, also show officials agonizing over different possibilities for the future. Documents show that at last month's meeting, multiple participants discussed a range of scenarios for future monetary policy action. Among them, almost all participants agreed that it would be appropriate to keep interest rates unchanged or cut interest rates under the condition that "inflation pressure subsided and inflation soon began to return to 2%." However, "most participants" also pointed to another scenario, which is that while the labor market remains stable, inflation will remain high due to strong AI-related demand, conflict in the Middle East, or the impact of tariffs. In this case, almost all participants said that "some degree of policy tightening may be necessary" to bring inflation back to 2%. Therefore, the Fed's subsequent actions largely depend on the direction of subsequent inflation data. The May personal consumption expenditures price index (the inflation indicator named by the Fed) released after the June interest rate meeting rose by 4.1% year-on-year, a new high since 2023; after excluding volatile food and energy prices, the core inflation indicator also rose by 3.4%. Also since that meeting, international oil prices once fell back to pre-war levels after the United States and Iran implemented the ceasefire document, but rebounded quickly after the hostilities escalated in the past two days. For investors and Fed officials, the next focus will be June CPI, due out on July 14. On the same day, Warsh will attend a hearing before the U.S. House of Representatives. This will also be his first congressional hearing after taking office as chairman of the Federal Reserve. By the way, compared with the Fed's interest rate resolution, which was cut to only one-third of its previous length, the 14-page meeting minutes released today are only 1-3 pages shorter than previous meetings. Considering that Warsh has repeatedly stated that he wants to reform the Fed's communication strategy, there is room for further "streamlining" in future meeting minutes. The minutes of the meeting showed that many participants pointed out that now is the appropriate time to consider making major adjustments to the FOMC post-meeting statement, and "they believed that shortening the statement would be beneficial." (