The FOMC released the minutes from Chair Warsh’s first meeting on Wednesday, and the best word to describe the Fed’s advice is “ambiguous.” Merriam-Webster defines ambiguous as a state or, in this case, a statement that allows for more than one interpretation.Officials entertained policy scenarios in both hawkish and dovish ways. Some see inflation easing enough to allow rate cuts, while others envision sustained price increases that would require rate hikes. Warsh billed the ambiguous internal debate as a “family fight” that ended with a unanimous vote to hold. The statement doesn’t paint the picture of a committee marching lockstep toward a hike later this year. It is a committee uncertain about what comes next. Might this become the norm as they attempt to dissuade forward guidance?Regarding inflation, the meeting participants judged 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.Importantly, the risks to the inflation outlook, they noted, were “still tilted to the upside.“There was more ambiguity with the Feds outlook on AI-driven inflation and disinflation. The committee stated, “Ongoing strong demand for AI infrastructure would likely sustain upward pressure on prices for technology products and electricity.” The AI buildout is a source of inflationary pressure, at least in the near term. However, Warsh and some other Fed members have also discussed the disinflationary benefits of AI-related productivity gains.Given the ambiguous nature of the minutes, investors should watch the upcoming June CPI and PPI data, and then the July employment data, for policy clues. As we share below, the market assigns a 50% chance of a hike at the September meeting. Given the lack of visibility under Warsh, as we wrote in Forward Guidance R.I.P., the data will gain in importance and likely boost market volatility around key data releases.The ambiguity in Wednesday’s minutes is deliberate and may be masking something the market is not fully pricing in. While the Feds debate was split, history offers an important lesson: once the Fed starts hiking rates, it rarely stops at just one.Former St. Louis Fed President Jim Bullard stated it plainly.“The committee does not generally do that. What’s the point of one rate increase?The Feds record supports his skepticism. Since 1990, the Fed has initiated five distinct tightening cycles. Not one ended after a single move.1994: Seven hikes — Fed funds doubled from 3% to 6% in twelve months1999: Four hikes over twelve months before the dot-com bust forced a reversal2004: Seventeen consecutive hikes over two years from 1% to 5.25%2015: Nine hikes spread over three years2022: Eleven hikes, 525 basis points in sixteen months — the most aggressive cycle in forty yearsToday’s environment environemnt is a little unique as it’s a supply-driven inflationary concern. The Fed’s policies will have little influence on oil prices.While the minutes were ambiguous, the historical playbook is not. If September brings the first hike, investors should be thinking about November and assessing whether the rate hike is temporary and a one-off move or the first in a series. If they hike, our bet is they hike once or twice and quickly reverse course once oil prices head lower again.The graph below shows the correlation between oil prices and year-end Fed Funds expectations.Original Post