The Fed lowered its economic projections for GDP and upped the risks. 
Minutes of the Federal Open Market Committee
Please consider Minutes of the June 16–17, 2026 Federal Open Market Committee emphasis mine.
Staff Economic Outlook
The staff’s inflation forecast for this year and the next was higher than the one prepared for the April meeting, reflecting incoming data, higher energy prices and other input costs due to the conflict in the Middle East, and the effects of the AI buildout on consumer prices. Total inflation was projected to slow over the second half of this year from its recent pace, as retail gasoline prices were expected to decline, although core inflation was forecast to change little over the rest of the year. Inflation was projected to step down next year, as some of the factors lifting inflation this year—such as tariffs—were expected to wane, and then move down further to about 2 percent in 2028.
The staff’s outlook for real GDP growth was a bit lower than the one prepared for the previous meeting, mostly reflecting incoming data. Real GDP was forecast to expand at about the same pace as potential this year and to slightly outpace potential over the next two years, buttressed by persistently strong productivity growth, continued gains in AI-related capital spending, and supportive financial conditions. The unemployment rate was expected to remain close to the staff’s estimate of its longer-run rate this year and next before edging slightly below it in 2028.
The staff continued to view the uncertainty around their forecast as elevated, importantly because of uncertainty about the conflict in the Middle East and about the potential economic effects of AI investment and adoption. On balance, risks to the forecasts for employment and real GDP growth were seen as tilted somewhat to the downside. Risks to the inflation projection were seen as more skewed to the upside. With inflation having run significantly above 2 percent over the past five years and in light of some emergent price pressures that appeared unrelated to tariffs or energy prices, the staff continued to view the possibility that inflation would be more persistent than projected as a salient risk.
Participants’ Views on Current Conditions and the Economic Outlook
Participants generally noted that inflation had increased further and remained well above the Committee’s 2 percent longer-run objective. They observed that both core and total inflation had moved higher and generally attributed these increases to the lingering effects of tariffs, supply chain disruptions related to the closure of the Strait of Hormuz, and strength in demand for some goods and services stemming from robust AI-related investment. Several participants commented that price pressures had become more broad based, with a large share of goods and services—including transportation, airfares, petrochemical products, and agricultural inputs—experiencing substantial increases. Several participants remarked that services price inflation excluding housing had declined little and remained high.
Participants anticipated that inflation would remain elevated in the near term and then begin to decline as the effects of tariffs and energy price increases wane and other supply disruptions related to the closure of the Strait of Hormuz diminish. Participants judged that the risks to the inflation outlook were still tilted to the upside. Many participants noted that elevated commodity prices and supply disruptions could persist longer than currently anticipated. Several participants reported that their business contacts were facing notable cost pressures. Some participants observed that the sharp rise in input costs reported in business surveys raised concerns about the potential for higher energy and commodity costs to pass through more broadly to final goods prices.
Participants generally expected solid real GDP growth to continue throughout the remainder of the year and pointed to several factors likely to support continued expansion, including ongoing AI-related investment, household spending, and fiscal policy. Participants generally acknowledged that while the economy had demonstrated resilience to date, uncertainty surrounding the economic outlook remained elevated, partly due to the conflict in the Middle East.
Regarding participants’ individual assessments of appropriate monetary policy under what each participant judged to be the most likely scenario for the economy, many participants indicated that the appropriate level of the federal funds rate would be within or slightly below the current target range at the end of this year. Many other participants, however, assessed that the appropriate level of the federal funds rate would be above the current target range at the end of this year. Participants noted that their future policy actions would depend on incoming information.
A number of participants noted that it was an opportune time to consider significant changes to the FOMC’s postmeeting statement. A majority of participants remarked that they saw advantages in shortening the statement. Most participants emphasized that they preferred not to repeat the language in the previous postmeeting statement that had suggested an easing bias regarding the likely direction of the Committee’s future interest rate decisions. Various participants discussed how the public could perceive the changes to the postmeeting statement. Some participants commented that they welcomed the opportunity to review the Committee’s communications tools and practices.
The Chairman described plans to establish five independent task forces to examine issues related to the broad conduct of monetary policy.
Of Special Note
- If inflation drops “almost all of these participants noted that it would likely be appropriate to maintain or eventually lower the target range for the federal funds rate.“
- “Most participants, however, also pointed to scenarios in which, in the context of stable labor market conditions, inflation would remain elevated due to strong AI-related demand, the conflict in the Middle East, or the effects of tariffs. In such scenarios, almost all of these participants indicated that some policy firming would likely be warranted to return inflation to 2 percent.“
Statement 1: Maintain or eventually lower
Statement 2: Policy firming
Warsh Is Stuck With Two Bosses
Fed Chair Kevin Warsh is stuck with two bosses.
Warsh’s first boss is Trump who wants lower rates. His second boss is inflation which has defied the Fed’s expectations.
Forward guidance and dot plots may go away. Warsh does not like either. But rather than do away with them, he set a task force to decide.
It is likely Warsh shortens FOMC statements starting with the July meeting.
Market Reaction
It’s difficult to ascertain what if any impact the minutes had on the market because the renewed fighting in Iran and Trump’s cancelling of the MOU set the tone for the day.
My guess is nearly all of the market reaction today in bonds is from the Mideast. However, Fed concerns over AI spending and persistent inflation didn’t help.
For the July meeting, rate hike odds are 30.5 percent, up from 26.7 percent yesterday.
Looking ahead to September, the futures market sees a 67.9 percent chance of a at least one hike, up from 61.9 percent yesterday.
I highly doubt the Fed hikes at the October 28th meeting so close to the election.
The betting markets, however, forecast a 76.6 percent chance of at least one hike (up 4.8 percentage points from yesterday), with a 28.9 percent chance of at least two hikes.
The net expectation then is for a single quarter point hike by the end of October. If so, expect that hike in September, not July or October.
There is no meeting in August or these odds would look a lot different.
I will reserve rate hike judgement until we see how quickly (or not) Trump backs off fighting Iran. We also need to see the next CPI, PCE, and job reports.
Related Posts
July 8, 2026: Trump Warns Ceasefire with Iran Is Over, Calls Iran Scum, Oil Surges 8 Percent
I didn’t think Trump would be this foolish, but here we are.
July 7, 2026: Goods and Services Trade Deficit Expands 44 Percent to 77.6 Billion
Trump’s tariffs have done nothing to reduce the trade deficit.
July 6, 2026: Trump’s Tariffs Did Not Bring Back Manufacturing Jobs. What Will?
On average, tariffs are a jobs killer. They protect one industry while costing others.
Maybe off topic. With Chinese AI service running 90% less than American companies with nearly the same quality how can American companies compete? Can anyone realistically project the ROI of US AI data centers in 12 or 18 months let alone 5 years?
Speaking of inflation this article is interesting:
https://www.cbsnews.com/news/freedom-fuel-gas-station-trump/
Is this Trump’s round about way to implement price controls? Why is the govt in the business of selling gasoline? That’s not something the govt should be doing.
After reading this I can only surmise that the speed to crazy town (collapse) is increasing at an astonishing speed now.
My bad the article actually says these gas stations aren’t govt backed.
OK , but who goes into the business of losing money?
Thos while thing smells of lies.
A politically motivated well funded corporation with its own oil wells and refinery can sell gas at a loss to essentially buy market share and loyal customers.
Once it drives its competitors out, it can raise priced and own the market.
If they lower their prices below cost their competitors will simply drive up and fill their tankers and block the pumps…
Gas “price wars” can be fun for the consumer! 😉
But the Donald told us that DOGE and his tariffs would pay off the national debt and we would get big fat checks from all of his winning!.
Trump is an economic and political bully.
As for the Feds debate? Reality is a tough taskmaster.
Warsh is in the unwinnable situation of having to publicly declare his favorite child: labor or inflation.
Sophie’s choice. The labor participation rate is collapsing under Trump’s economic policies, keeping unemployment relatively low. So hand the labor kid over to the Nazis and spend your resources on the inflation kid.
The problem is and has been for some time now that the Fed has two bosses and that never works. His bosses are actually inflation and the labor market/unemployment.
After the actions taken in the GFC and ZIRP ruling for oh so long, after the extreme moves during/post covid creating the step change in the price of EVERYTHING, the next time the Fed takes orders from the labor market they will see a much more rapid response by what should be their only boss–inflation. Arguably, given they shouldn’t exist at all, they should only be concerned about money supply as it impacts price (of credit/money/stuff). They already undercount and it’s already straining our psyche on the daily.
Trying to impact the labor market via money supply has always seemed sketchy AF to me–leave the politicians to botch that up and central banks can move interest rates as necessary to address inflation only.
In every job I’ve ever had, having 2 managers is a recipe for disaster for outcomes and misery for all involved.
meanwhile: White House launches 25 Freedom Fuel gas stations
https://www.usatoday.com/story/news/politics/2026/07/07/white-house-announces-freedom-fuel-gas-stations/90838506007/
Gas rose “due to shipping disruptions in the strait of Hormuz.”
USA Today is for the dumbest people among us. Including the crossword puzzle.
Is Warsh the new Arthur Burns (Fed Chair of 1972 election year rate cuts fame)? There are eerie parallels between aspects of Trump and aspects of Nixon. Is it any kind of solace that the USA started stumbling in those years, and later made a comeback? But that was after years of inflation and global embarrassment.
With big secular trends favoring inflation, and Trump’s meddling inherently big with no clarity, I tend to read the murk as inflationary. Trump can rail about things, but sooner or later the bond market players must protect themselves. I’ve opened up a hedging segment of my portfolio; accordingly.
And how about this: once AI providers start charging to actually make a profit/return on investment, costs to now-dependent users (I’m thinking business especially) will inflate, and trickle down to all payors. Enjoy nearly-free AI while it is here!
Take a look at China’s AI and tell me what is in the future for US AI data centers.
My thought, bankruptcy in the near future or until they can no longer raise money.
Mish, Regarding “Participants judged that the risks to the inflation outlook were still tilted to the upside. Many participants noted that elevated commodity prices and supply disruptions could persist longer than currently anticipated.”
Take a look at the recent Financial Times comment by former BOE chief economist Andrew Haldane — https://www.ft.com/content/01c5ea35-a0fa-469f-b8bb-356d98c05fb0?syn-25a6b1a6=1 — in which he says:
“Recent research with economist Prasanna Gai shows that, if we ignore the rich topology of global supply chains, the inflationary spillovers from shocks to key supply hubs are significantly underestimated, fattening inflation’s upper tail and increasing its persistence.”
The Gai paper is worth a read — https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/events/2026/shipping-lanes-and-inflation-at-risk-speech.pdf
Inflation persistence is a core FOMC concern.
Keep up the great work.
I don’t think the Fed is in control of rates now, for we should start to see rates rise on their own (market forces) from here on out. Of course the Fed will try to lower rates on the short end, but it wont offer relief.
Jobs being taken over by AI is a smoke screen (at this point) for its cover for the job losses that naturally occur during recessions/depressions (the govt doesn’t want to admit that the economy is that bad).
However, AI and AI powered bots are a real thing, but I’m of the opinion their use and need is dependent on two facts: (1) the need for profits – cutting human jobs is the #1 way businesses increase profits when economies turn south; and (2) they need a way to keep things going when the body bags start to pile up from world war, and or, civil war.
That said don’t be surprised to see rates go up, metals go up, stocks go up, and the dollar go up at the same time inflation goes up. When you see this happening you’ll know you’ve arrived at the end of the debt based money system.
I believe the ONLY reason Warsh is going more opaque I.e. “studying’ dot plots” and other nefarious moves is ONLY so he can start creeping things toward Trump cuts without telegraphing it in advance.
I remember Greenspan. He prided humself on being unpredicatable. And you know what? Powell et al and the markets found transparency was preferred by evveryone – and Mr. Markets.
Sure, Greenspan likely gained some power by being opaque as participants wanted him to share anything they could get. If you call keeping financial secrets “power” – I think it’s wrongly abusing your job.
We’ll see what we get. This is my bet. If I’m right and he starts being too aggressive with cuts we’ll find it in inflation. Which after policy mistakes have long tail risks to repair. See: Housing price inflation.
BTW, as those of us who lived through it The Fed had a major mistake letting the technology bubble engulf evverythind. EVERYONE was asking why the Fed did not atleast try tempering things with raising margin requirements. BUt Greenspan was against that (due to some weasal excuse that then caused the bubble pop to get worse.
Which was followed by abuse lending and mortgage fraud courtesy of LACK OFF controls! You whine about the Consumer Protection Bureau and Warren; but you forget the unethical behavior and fraud the industry perpetrated on customers. Things like if you had a late card payment they would double your rate. Interest Only mortgages leaving perpetual debt for lenders (Lovely things like Washington Mutual booking over 40% of it’s REPORTED INCOME was NON-ACCRUING MORTGAGE DEBT. Leaving creditors in a debt trap, etc.
Warsh is just one vote. Nearly all the rest are independent at best, most with a grudge against Trump.
Yes indeed. Aware of that saving grace. I just don’t trust him. Believe he’s a wolf in sheeps clothing. But we shall see. Now Trump will keep working to replace other Board members.
This “legal” BS of the 2nd Bubble (The first Housing Bubble, bursting circa 2008 was on Greenspan’s watch.) As well as his famous lying BS that the Treasury needed to get back to deficits as in effect Clinton was paying off too much of it. (Doubt me? Go look.) And those were the last years of any Fiscal Sanity – and it just happened to be during/creating the longest economic expansion of the 2000’s. FACT. Greenspan, and I’m sure Warsh would fight policies that produced those twin virtues.
Here it is: “You are referring to former Federal Reserve Chairman Alan Greenspan’s 2001 congressional testimony and speeches, where he warned about the “peril of zero debt“. He pointed out that if the U.S. Department of the Treasury bought back too much debt, it would be forced to invest massive budget surpluses into the private sector, which could distort capital markets and harm the economy.”
Which was a clarion call for GB1’s deficits – and the starting point of current deficits. Yes, “great peril of zero debt”!! Was just throwing red meat to the masses.
The housing bubble may have started on Greenspan’s watch, but Ben Bernanke was FED chair from 2006-2014.