Fed minutes show rate hike split under Warsh as Iran ceasefire threatens new inflation surge

Hawkish signal at Warsh's first meeting

Minutes from the June 16-17 meeting, released Wednesday, showed a divided Federal Open Market Committee. Some officials said they could have supported raising rates immediately, while others wanted to hold steady. The vote to keep the benchmark rate at 3.5-3.75% was unanimous, but the committee removed a longstanding bias toward future rate cuts.

In such scenarios, almost all of these participants indicated that some policy firming would likely be warranted to return inflation to 2 percent.

Inflation and the Iran war threat

The discussion was dominated by resurgent inflation, now at 4.1% annually through May, more than double the Fed's 2% target and at a three-year high. The war with Iran has driven up energy costs, and Trump's statement on Wednesday that the ceasefire might be over sent oil prices sharply higher. Participants also cited AI-fuelled demand and tariffs as upward risks.

Warsh reshapes communications

Chairman Kevin Warsh used his first meeting to curtail the Fed's traditionally detailed communications. The post-meeting statement was drastically shortened, removing any forward guidance on rates. The minutes themselves were only marginally pared down, but Warsh broke with tradition by refusing to submit any economic projections, according to the FT.

Global inflation warnings

The same day, the IMF warned that inflation remains a threat to the global economy. Markets are now pricing in a higher chance of further tightening if the Iran conflict escalates.