Fed minutes show split on 2026 rate path as AI demand lifts inflation risks

Federal Reserve minutes from the June 16-17, 2026 FOMC meeting showed policymakers kept the federal funds rate at 3.50% to 3.75% in Kevin Warsh's first meeting as chair, while remaining divided over whether persistent inflation could require higher rates later in 2026. The minutes said many officials saw strong demand for AI infrastructure as likely to sustain upward pressure on technology products and electricity prices, and New York Fed President John Williams later said the Fed would not "look through" an AI-driven inflation shock if demand stays persistently above supply. Williams said core PCE running at 0.2% a month in the second half of 2026 would be consistent with continuing disinflation toward the Fed's 2% annualized target, while higher readings would signal more persistent inflation that could require a policy response. Market pricing also reflected uncertainty over the rate path, with Kalshi traders assigning a 54% probability of a Fed rate hike this year and a 62% chance the next increase comes before July 2027, while other coverage cited CME futures showing roughly a 70% probability of no change at the next meeting.