The Federal Reserve's rate-setting committee remains divided over the trajectory of inflation and the corresponding path for interest rates, according to minutes released Wednesday from the June 16-17 meeting. This marks the first set of minutes published under new Fed Chair Kevin Warsh, who took over earlier this year.

Among the 19 officials on the committee, many anticipated that the central bank’s benchmark interest rate—currently at 3.6%—would remain steady or slightly decline by the end of 2026, while a similar number expected rates to rise by year-end. The forecasts submitted by 18 policymakers after the meeting reflected this split, with half favoring a rate increase and the other half supporting no change or a reduction. Warsh did not submit a formal projection, citing concerns that doing so might constrain policymaking flexibility amid evolving economic conditions.

The minutes highlight substantial disagreement among Fed officials on the outlook for inflation. Policymakers generally agreed that inflation pressures might ease as gasoline prices declined and tariff effects diminish, a trend expected to moderate overall price increases. However, many expressed concern that the rapid expansion of artificial intelligence (AI) infrastructure investment could sustain elevated inflation. These officials pointed to rising prices in semiconductors, computer equipment, and electricity—key inputs for AI data centers—as a potential source of upward pressure on prices.

A few participants indicated there was “a case for raising” interest rates at the June meeting, but ultimately the committee chose to keep the rate unchanged through a unanimous vote. The minutes did not specify which officials held particular views on the issue.

The ongoing conflict involving Iran, which began in late February, has also influenced inflation dynamics. Consumer prices reached a three-year peak of 4.2% in May amid geopolitical tensions and resultant economic uncertainty. Since then, gas prices have fallen along with easing conflict-related pressures, leading some officials to expect inflation to cool in upcoming reports.

Nevertheless, the Fed remains attentive to inflation expectations among consumers and businesses. The Federal Reserve Bank of New York reported on Tuesday that one-year inflation expectations rose to 3.7%, the highest in nearly three years, while expectations over three years climbed to 3.3%, the highest in four years. Rising expectations can contribute to a self-fulfilling cycle of price and wage increases, complicating the Fed’s efforts to stabilize inflation. Chair Warsh and many officials track these expectations closely, though market-based measures of inflation sentiment have exhibited more stability than consumer surveys.

Warsh has emphasized the central bank’s commitment to returning inflation to its 2% target, a goal that has remained elusive for over five years. While some investors and economists interpret his statements as indicative of potential rate hikes later this year, the committee’s minutes reflect a continuing debate over the appropriate policy stance amid uncertain economic factors. As the Fed navigates these challenges, its divided stance underscores the complexity of addressing inflation in the current economic and geopolitical environment.