In the early hours of July 9, 2026 (UTC+8), the Federal Reserve released the minutes from its June 16–17 Federal Open Market Committee (FOMC) policy meeting. This was the first rate-setting meeting chaired by Kevin Warsh since he took over as Fed Chair.
On the surface, the outcome of the June meeting held no surprises— all 12 voting members unanimously agreed to keep the federal funds rate target range unchanged at 3.50% to 3.75%. This range has remained steady since December 2025. However, beneath this "unchanged" exterior, significant undercurrents are at play.
The minutes reveal that participants’ assessments of appropriate monetary policy, based on what each saw as the most likely economic scenario, fell into two evenly matched camps. Some members anticipated that inflation would gradually cool, opening the door for rate cuts. Others believed that prices would remain elevated, requiring further rate hikes to tighten policy.
This split is not a matter of mild academic disagreement, but rather a real contest over policy direction—rate cuts on one side, rate hike risks on the other, with both forces clashing directly within the Fed.
Inflation Stays High: The Three Drivers Behind the 4.1% Figure
Currently, US inflation has risen year-over-year to 4.1%, far exceeding the Fed’s 2% policy target. Price increases have surpassed the target range for six consecutive years. The Fed’s preferred Personal Consumption Expenditures (PCE) Price Index rose 4.1% year-over-year in May, marking the largest increase since April 2023. Excluding food and energy, core PCE rose 3.4% year-over-year. Stripping out housing, service sector inflation has barely eased.
The minutes detail three main factors pushing inflation higher:
First, the ongoing impact of tariffs. A year ago, the Fed could treat tariff-driven price increases as a one-off factor and let them pass, given the then-weak labor market. Now, hiring has stabilized, and both the energy and AI sectors are introducing new cost pressures. Several officials believe that waiting under these conditions poses greater risks—above-target inflation could become entrenched.
Second, supply chain disruptions caused by the closure of the Strait of Hormuz. On the eve of the June meeting, Middle East conflicts and rising energy costs were prominent risks for policymakers. Markets worried that higher oil prices could spill over into stickier inflation. As the meeting approached, a temporary agreement was reached to reopen shipping through the Strait of Hormuz, easing concerns and bringing oil prices down. However, this relief was short-lived—Trump announced an end to the ceasefire with Iran following Iranian attacks on commercial vessels, prompting a new round of US strikes.
Third, artificial intelligence investment—an unprecedented new variable. Just months ago, investment in AI infrastructure was barely on the Fed’s radar as a source of inflation. Now, several officials have noted that surging data center construction and computing power expenditures have become a new source of demand, while the economy’s supply capacity is under strain. The minutes state: "Several participants commented that price pressures have become more widespread, with most goods and services… experiencing significant increases." More officials believe that robust business investment driven by AI infrastructure could become a new force sustaining price pressures.
This is the first time the Fed has formally included AI investment in its inflation discussion framework. Strong demand for AI infrastructure is seen as likely to push up prices for tech products and electricity, intensifying short-term inflation pressures.
Multiple officials believe that high commodity prices and ongoing global supply chain disruptions may last longer than markets expect. Meanwhile, several Fed officials have bluntly stated that current interest rates have not effectively curbed inflation. Another warning signal comes from the Fed’s internal research team, which has raised inflation forecasts for this year and next, predicting that core inflation will remain elevated for the rest of the year, with little sign of a meaningful decline.
Deadlock: 18 Officials, Two Futures, One Unresolved Answer
The economic projections "dot plot" released after the June meeting clearly illustrates the internal split:
Of the 18 officials providing rate forecasts, 9 expect at least one rate hike in 2026, with 6 anticipating two hikes. In March, none held this view. Meanwhile, the number expecting rate cuts dropped from 12 in March to just 1. The median federal funds rate forecast for the end of 2026 was raised from 3.4% in March to 3.8%.
Another 9 officials expect rates to remain unchanged or even be cut—8 project no change, and 1 sees room for a rate cut this year.
The committee is almost evenly divided. Notably, Warsh, a frequent critic of "forward guidance," declined to submit his own forecast.
Yet, the underlying structure of this split is far more complex than the numbers suggest. The minutes reveal two sharply contrasting scenario analyses:
Scenario One: Inflation pressures ease, and inflation "soon" begins returning to the 2% target—"almost all" participants discussing this scenario believe the Fed should "maintain or eventually lower" the federal funds rate. Several participants indicated that by year-end, a reasonable federal funds rate would be within or slightly below the current target range.
Scenario Two: Inflation remains elevated due to AI-driven demand, Middle East conflict, or tariff factors—"almost all" participants discussing this scenario believe "some degree of policy tightening may be necessary." The minutes state: "Most participants noted that if inflation remains above the 2% target for several years, persistent high prices could gradually distort market inflation expectations and alter how businesses set wages and prices."
The minutes explicitly state that, in each participant’s assessment of appropriate monetary policy under their most likely economic scenario, "many participants indicated that by year-end, the appropriate level of the federal funds rate would be within or slightly below the current target range. However, many others believed that by year-end, the appropriate rate would be above the current target range."
This split is so difficult to reconcile because even the committee itself cannot predict what will happen next. The minutes show that if inflation slows, most participants expect the Fed to maintain or eventually lower the current range; but if energy prices, tariffs, and AI-driven demand keep inflation high, most believe further tightening may be needed.
"A Minority" See Reasons for a Hike, But No One Pulls the Trigger
One of the most closely watched phrases in the minutes is that a "minority" of participants believed there were reasons to hike rates at the June meeting.
Wall Street analysts have dissected this language carefully. Michael Gapen, Chief US Economist at Morgan Stanley, made it clear this is not the same as being "inclined to hike." He wrote: "These ‘minority’ participants indicated they are currently comfortable with keeping policy rates at their present level." Citigroup economist Andrew Hollenhorst echoed this view, citing the minutes: these participants "supported keeping the current target range unchanged at this meeting."
In other words, even if some thought a hike was justified, no one was actually ready to act at this point.
The minutes confirm that most officials supported shortening the post-meeting statement and favored removing language hinting at the next policy move. The final statement dropped "forward guidance," instead emphasizing that future policy decisions will be based on incoming data. The minutes also make clear: "All members stated that future policy adjustments will be entirely data-dependent."
This shift is significant. Since taking over, Warsh has deliberately avoided forward guidance—he sidesteps it in both the policy statement and press conferences, and is unlikely to use the minutes to send indirect signals. He described the intense policy debate as "family infighting."
Market Reaction and Crypto Asset Performance
Following the release of the minutes, market pricing for near-term rate hikes pulled back somewhat. As of July 9 (UTC+8), the CME "FedWatch" tool showed a 69.0% probability that the Fed would keep rates unchanged in July, with a 31.0% chance of a 25 basis point hike. For September, the probability of no change was 31.1%, a 25 basis point hike was at 51.9%, and a 50 basis point hike was at 17.0%.
In US equities, the three major indexes closed mixed on July 9 (UTC+8): the Dow Jones Industrial Average fell 1.09% to 52,348.39; the Nasdaq rose 0.20% to 25,870.65; and the S&P 500 slipped 0.28% to 7,482.71. The Dow dropped as much as 855 points during the session.
In crypto markets, according to Gate market data as of July 9, Bitcoin traded at $62,807.9, up 0.43% over 24 hours, with a market cap of approximately $1.25 trillion and 24-hour trading volume around $917.018 billion. Over the past 7 days, Bitcoin’s price fell 7.63%, down 10.73% over 30 days, and down 33.74% over the past year. Ethereum traded at $1,753.16, up 0.28% over 24 hours, with a market cap of about $211.578 billion. Over the past 7 days, Ethereum’s price dropped 7.38%, down 20.92% over 30 days, and down 31.14% over the past year. Both leading crypto assets remain in a "neutral" market sentiment range, with overall prices consolidating.
Markets are digesting the policy signals from the Fed’s June minutes—rate cut narratives are fading, the possibility of rate hikes is back on the table, and a reconfiguration of macro liquidity expectations is redefining risk asset pricing logic.
Conclusion: The Year’s Rate Path Remains Uncertain
The Fed’s June meeting minutes paint a picture that is both clear and complex—beneath the surface consensus on keeping rates unchanged, officials are now split into two evenly matched camps over the future. The 2026 rate path has shifted from the early-year "rate cut narrative" to today’s "rate hike risk," marking one of the year’s most significant macro narrative shifts.
The minutes confirm the Fed’s overwhelming focus on inflation, leaving plenty of room to resume rate hikes in September. However, the direction of future data remains the key variable that will ultimately determine policy.
For investors, several key dates warrant close attention: the June Consumer Price Index (CPI) release on July 14, which coincides with Warsh’s first Congressional testimony, and the next FOMC meeting on July 28–29.
Goldman Sachs, Morgan Stanley, and Citigroup all reached a similar conclusion after the minutes: the Fed’s current reaction function remains data-driven, with policy direction entirely dependent on inflation data over the coming months. Goldman economist Jan Hatzius’s team summed up the core logic: the crucial dividing line in the minutes is whether inflation can "soon" start to decline. Two paths, one key: the inflation data.
For the crypto market, shifting macro liquidity expectations are redefining risk asset pricing logic. The retreat of rate cut expectations and the return of rate hike possibilities mean the liquidity narrative that previously supported crypto asset valuations is now being tested. The direction of inflation data in the coming months will not only determine the Fed’s policy path, but will also profoundly affect global capital flows and risk asset repricing.
FAQ
Q: The Fed kept rates unchanged at its June meeting. Why is the market suddenly talking about rate hikes?
Because the minutes reveal a sharp internal split—of the 18 officials providing forecasts, 9 believe at least one rate hike will be needed before the end of 2026, whereas in March, none held this view. With inflation rising to 4.1% and AI investment emerging as a new inflation driver, the "rate cut narrative" has given way to "rate hike risk."
Q: Why does the Fed now see AI investment as an inflation risk?
The surge in data center construction and computing power expenditures has become a new source of demand, while the economy’s supply capacity is under strain. Several officials believe that strong business investment in AI infrastructure could push up prices for tech products and electricity, becoming a new force sustaining price pressures. This is the first time the Fed has formally included AI in its inflation discussion framework.
Q: Will the Fed hike rates at its July meeting?
CME "FedWatch" shows a 69.0% chance of rates staying unchanged in July, and a 31.0% chance of a 25 basis point hike. The minutes indicate a "minority" of officials thought there were reasons for a hike in June but ultimately supported holding steady. The June CPI release, due before the July meeting, will be a key reference point.
Q: What is the structural root of the Fed’s internal split?
It stems from differing views on the persistence of inflation. One camp sees current high inflation as driven by temporary factors like tariffs and energy, which will eventually fade. The other believes that AI investment, high commodity prices, and supply chain disruptions could make inflation more persistent. These two views point to very different policy paths.
Q: Why are crypto markets so sensitive to the Fed’s meeting minutes?
As highly volatile risk assets, crypto is extremely sensitive to macro liquidity expectations. The fading of rate cut expectations and the return of rate hike possibilities mean the liquidity logic that previously supported crypto asset valuation is now being tested, directly impacting market risk appetite and capital flows.
