Fed Minutes Reveal Hawkish Tilt, Setting Up Test for Warsh — Evening Brief – 05.20.26

The Federal Reserve emerged from its final meeting under Jerome Powell more hawkish than it entered the year, with most policymakers signaling openness to rate increases if inflation remains stubborn and only a handful prepared to cut, according to minutes from the Federal Open Market Committee’s April 28-29 meeting released Wednesday.

And that hawkish shift has taken hold against a backdrop of resilient U.S. economic data, where stronger-than-expected readings on both growth and inflation have given policymakers little urgency to ease and, in the eyes of many on the committee, fresh reason to consider tightening further.

The FOMC voted to hold the federal funds rate unchanged at 3.50%-3.75% for a third consecutive meeting, but the internal divisions laid bare in the minutes may prove consequential for incoming Chair Kevin Warsh, who is scheduled to be sworn in Friday and whose first meeting will be in June.

“A majority of participants highlighted that some policy firming would likely become appropriate if inflation were to continue to run persistently above 2%,” the minutes stated—a significant hawkish signal even as a smaller group of “several” participants said rate cuts would be appropriate once disinflation resumes or labor market conditions weaken.

Policymakers broadly agreed that uncertainty stemming from the Middle East conflict and elevated inflation could require holding rates at current levels longer than previously anticipated. Upside risks to inflation and downside risks to employment were both flagged as elevated.

The committee indicated it remained data-dependent, noting it was “well positioned” to adjust policy timing based on incoming economic information and the evolving risk outlook. Rate cuts could resume, the minutes suggested, if Middle Eastern tensions ease and the inflationary effects of tariffs and elevated energy prices dissipate as expected.

The dynamic presents an early test for Warsh, who has publicly advocated for lower rates but may find the current committee resistant to a more dovish posture.