Some officials at the U.S. Federal Reserve viewed inflation risks more seriously than before, according to minutes released on the 8th.
According to the minutes of the June Federal Open Market Committee (FOMC) meeting released that day, several participants noted with respect to recent supply shocks related to the labor market and energy that "given these circumstances, there was a case for raising the target range for the federal funds rate." The minutes also said that "participants generally assessed, based on information received during the intermeeting period, that upside risks to price stability remained high, while downside risks related to achieving maximum employment had eased somewhat."
At the June FOMC, the committee unanimously decided to hold the base rate at the current 3.50-3.75%, but there were voices arguing for a rate hike during internal discussions.
Participants expected that the inflation rate would remain elevated in the short term and then gradually decline as the effects of tariffs and rising energy prices weakened. However, most participants noted that continued strong demand for artificial intelligence (AI) infrastructure could keep upward pressure on prices.
At the first meeting chaired by new Fed Chair Kevin Warsh, officials also expressed broad support for the changes in communication approach that Warsh proposed. After his first FOMC meeting last month, Warsh cut the content of the statement to less than half its previous length and removed the forward guidance that had been attached to the statement. A majority of participants judged that there were benefits to simplifying the statement, and most participants favored removing the language signaling the Fed's next rate path.
The market is watching the possibility of a September rate hike. According to the Chicago Mercantile Exchange (CME) FedWatch Tool, the federal funds rate futures market puts the probability of the September rate at 3.75-4.0% (currently 3.5-3.75%) at 51.5% and the probability of 4.0-4.25% at 16.4%. Combined, the probability that the rate will have risen in September is 67.9%. It assigns a 32.1% probability of the rate staying at the current 3.5-3.75%.
