Fed Holds Rates Steady Amid Inflation Concerns
The US Federal Reserve unanimously decided to keep interest rates unchanged at 3.5-3.75 percent during its June 16-17 meeting, according to minutes released on July 9, 2026. The meeting marked the first chaired by newly appointed Fed Chairman Kevin Warsh.
Participants judged that risks to the inflation outlook were still tilted to the upside. Many noted that elevated commodity prices and supply disruptions could persist longer than currently anticipated, according to the minutes.
Key Factors Driving Inflation
The committee weighed several factors contributing to rising inflation, including the lingering impact of tariffs, the closure of the Strait of Hormuz, and the effects of the AI buildout. These elements raised upside risks to the inflation outlook.
Inflation forecasts for 2026 and 2027 were revised higher compared to projections prepared for the April meeting, primarily due to higher energy prices and the impact of AI infrastructure on consumer prices.
Economic Growth and Labor Market
The committee observed that economic growth for the second quarter was likely solid based on incoming data, and the jobs market remained stable. Real consumer spending had been solid, and the AI buildout continued to boost real investment spending on data centers, high-tech equipment, and software.
Data for April showed continued strength in both imports and exports of high-tech goods and a jump in energy exports, the minutes noted.
Inflation Outlook
Total inflation was projected to slow over the latter half of 2026 due to a likely fall in pump prices of gasoline. However, core inflation is expected to stay at the same levels for the rest of the year, participants noted.
The participants expect inflation to start trending down from 2027 and reach the target level of 2 percent by 2028.
