FED MINUTES: OFFICIALS WARN OF INFLATION RISKS OR FORCE INTEREST RATES TO RISE AND AI INVESTS IN NEW VARIABLES

ON 9 JULY, AT A MEETING HELD FROM 16 TO 17 JUNE, FEDERAL RESERVE OFFICIALS UNANIMOUSLY DECIDED TO MAINTAIN THE BASE RATE AT BETWEEN 3.5 AND 3.75 PER CENT. THE INTEREST RATE RANGE HAS REMAINED UNCHANGED SINCE LAST DECEMBER, AND ALL INDICATIONS OF FUTURE POLICY ADJUSTMENTS HAVE BEEN REMOVED FROM THE POLICY STATEMENT. THE MINUTES OF THE MEETING, PUBLISHED IN THE MORNING OF THURSDAY, BEIJING TIME, SHOW THAT OFFICIALS DO NOT FORM A SINGLE JUDGEMENT ON THE COURSE OF THE FOLLOW-UP POLICY. IF INFLATION CONTINUES TO BE HIGH THIS YEAR, THE INTEREST RATE HIKE WILL BE CONSIDERED A NECESSARY OPTION; IF PRICE PRESSURES ARE EASED SOON, INTEREST RATES CAN REMAIN UNCHANGED. THE CENTRAL ISSUE IN DETERMINING THE WAY FORWARD IS HOW LONG THE CURRENT PUSH-UP WILL LAST. THE DIFFERENCES REFLECTED IN THE SUMMARY ARE MAINLY FOCUSED ON HOW THE FUTURE WILL CHANGE, RATHER THAN WHETHER THE JUNE MEETING MUST ACT IMMEDIATELY. THIS THREE-WEEK DELAY SHOWS THAT CONCERNS ABOUT INFLATION PROSPECTS ARE DEEPENING AT THE DECISION-MAKING LEVEL. ACCORDING TO WRITTEN RECORDS, THE WAVE OF ARTIFICIAL INTELLIGENCE INVESTMENT, ALONG WITH WAR AND CUSTOMS POLICIES IN THE MIDDLE EAST, WAS SEEN AS A FACTOR THAT COULD KEEP PRICES HIGH AND SPUR THE FED TO RAISE INTEREST RATES. A FEW MONTHS AGO, AI INFRASTRUCTURE INVESTMENT WAS HARDLY YET A MAJOR SOURCE OF INFLATION IN FEDERAL RESERVE DISCUSSIONS. TODAY, SEVERAL OFFICIALS MENTIONED THAT THE CONSTRUCTION OF DATA CENTRES AND THE SURGE IN COMPUTING EXPENDITURE HAVE BECOME NEW SOURCES OF DEMAND, WHILE ECONOMIC SUPPLY CAPACITY IS STRAINED. “A NUMBER OF PARTICIPANTS COMMENTED THAT PRICE PRESSURES HAVE BECOME MORE WIDESPREAD AND THAT MOST GOODS AND SERVICES... HAVE EXPERIENCED SIGNIFICANT INCREASES”. MORE OFFICIALS BELIEVE THAT STRONG BUSINESS INVESTMENT DRIVEN BY AI INFRASTRUCTURE CAN BE A NEW FORCE IN SUSTAINING PRICE PRESSURES。