Minutes from the latest Federal Reserve meeting, released on Wednesday, showed that most policymakers believe interest rate hikes may become necessary if the war with Iran continues to fuel inflation.

Although the Federal Open Market Committee once again kept its benchmark interest rate within a range of 3.5% to 3.75%, the meeting saw four dissenting votes, the highest number of objections since 1992, reflecting deep divisions over the future path of monetary policy.

The debate focused heavily on the impact of the Iran war on prices and how that should shape monetary policy decisions. Officials also disagreed over how long the conflict’s inflationary effects may persist and whether the post-meeting statement should continue signaling a bias toward rate cuts as the most likely next move.

While several participants said rate cuts would become appropriate once inflation clearly moves back toward the Fed’s 2% target or if the labor market weakens, the minutes stated that “a majority of participants nevertheless emphasized that tighter monetary policy could become appropriate if inflation remains persistently above 2%.”

Three of the four dissenting votes came from regional Fed bank presidents who argued that the central bank should keep the door open to further rate hikes amid the current inflation wave.

Although they agreed with holding rates steady, they objected to retaining language in the statement referring to “additional adjustments” in interest rates, wording widely interpreted as implying that the next move would likely be a rate cut.

The minutes noted that “many participants preferred removing language in the statement that implied an easing bias regarding the likely direction of future interest rate decisions.”

However, in Federal Reserve terminology, the word “many” does not necessarily mean a majority, which is why the wording remained unchanged in the official statement.

Officials broadly agreed that the conflict with Iran would have “significant implications” for the Fed’s efforts to achieve its dual mandate of full employment and price stability, although disagreements persisted regarding how long the war’s inflationary effects may last.

The minutes stated that “the vast majority of participants indicated that the risk had increased that inflation could take longer to return to the committee’s 2% target than previously expected.”

The Kevin Warsh challenge

The meeting came under unusual circumstances, as it was the final meeting chaired by Jerome Powell as head of the committee. It also coincided with intensifying inflationary pressures driven largely by the war, alongside other factors that pushed policymakers to remain cautious about the future direction of monetary policy.

Former Fed Governor Kevin Warsh is set to assume leadership of the Federal Reserve following a lengthy selection process that reportedly included as many as 11 candidates.

US President Donald Trump clearly selected Warsh with the expectation that the Fed would cut interest rates.

However, market pricing now suggests the next move by the Fed is more likely to be a rate hike, whether in late 2026 or early 2027.

Inflation had been moving toward the Fed’s 2% target throughout 2025 and into the beginning of this year, but the war changed the equation as energy prices surged sharply, pushing most inflation indicators back above 3%.

Central bankers typically look through supply-side shocks such as rising oil prices on the assumption they are temporary. However, core inflation — which excludes food and energy — has also continued to rise.

Goldman Sachs expects the Fed’s preferred inflation gauge to show annual growth of 3.3% in April when data is released next week.

The challenge facing Kevin Warsh will be convincing fellow policymakers that productivity gains driven by artificial intelligence applications could create deflationary effects strong enough to offset the temporary impact of higher energy costs.

One of those colleagues will be Jerome Powell himself, who has decided to remain on the Federal Reserve Board of Governors.

Powell still has two years remaining on his board term and said in April that he would remain “for a period to be determined later,” repeating an earlier statement that he would stay “until these investigations are fully concluded.”

No Federal Reserve chair has remained on the Board of Governors after stepping down as chair in nearly 80 years.

A second energy crisis in less than four years is further eroding Europe’s industrial competitiveness, as rising energy costs once again undermine the continent’s ambitions to compete with the United States and China in attracting artificial intelligence investments and data centers.

Energy prices in Europe remain significantly higher than in the United States or Asia, while the stability of electricity grids is increasingly fragile and requires massive upgrades and investment. This leaves many European countries struggling to compete as destinations for new AI facilities and data centers.

In addition, European power grids are already heavily congested, meaning that connecting new projects to the network can take up to ten years in some regions. In the world of AI, where progress is measured in days, ten years is an enormous amount of time.

Rising energy costs in Europe

Europe began losing competitiveness in 2022, when the energy crisis triggered by Russia’s invasion of Ukraine caused a sharp surge in gas and electricity prices.

After two years of relative price stability — although still far above pre-crisis levels — the latest energy shock has pushed European energy costs sharply higher once again.

Energy-intensive industries across Europe are facing renewed pressure from soaring gas and electricity prices. Developers of AI infrastructure and data centers, which require enormous amounts of power, are also factoring electricity costs, inflationary pressures, and geographic location into their investment decisions, and Europe is often not the preferred destination.

Although electricity prices have risen globally as demand recovered across advanced economies after years of stagnation, European prices remain far above those in the United States and China.

Even before concerns emerged over a possible months-long closure of the Strait of Hormuz, electricity prices for energy-intensive industries in the European Union remained elevated last year, according to the International Energy Agency’s annual “Electricity 2026” report published earlier this year.

The report stated that electricity prices in the European Union during 2025 remained more than double US levels and roughly 50% higher than prices in China, adding further pressure on Europe’s energy-intensive industries.

Average wholesale electricity prices in the EU also rose around 10% year-on-year during 2025 to approximately $95 per megawatt-hour, alongside a 9% increase in Dutch TTF natural gas prices.

According to the agency, Europe maintained the highest wholesale electricity prices among the markets included in the study during 2025, with prices roughly double those in the United States and India, and significantly above levels in Australia and Japan.

The Middle East crisis and the disappearance of nearly 20% of global LNG flows have triggered another surge in European gas and electricity prices this year.

The European Commission is racing to implement plans aimed at decoupling electricity prices from gas prices. However, the reality amid the worst disruption in oil and gas markets remains that European electricity prices are still heavily tied to natural gas, despite major renewable energy expansion. As a result, wholesale electricity prices remain far higher than those in the United States and China, Europe’s main rivals in the AI race.

The United States leads global data center electricity demand

Data centers currently consume around 2% of global electricity demand, up from 1.7% in 2024 and 1.9% in mid-2025, according to a report released this month by the International Data Center Authority.

The United States remains the world’s largest data center market, accounting for 43% of global consumption, while data centers consume around 6% of total US electricity demand.

China ranks second, with data centers totaling 8.5 gigawatts in capacity and consuming roughly 0.8% of the country’s electricity.

Germany, the European Union’s largest economy, follows with 5.5 gigawatts of data center capacity, but these facilities consume approximately 9.5% of the country’s total electricity demand — an exceptionally high share.

High energy costs in Germany and the United Kingdom could discourage new data center developers.

Chris Seiple, Vice Chairman of Power and Renewables at Wood Mackenzie, told CNBC that Europe is losing the AI race on three main fronts:

Energy costs

Geographic location of data center developers

Speed of execution and grid connection

A recent study conducted last week by CBRE also showed that the cost of securing operational capacity for data centers across Europe’s five largest markets — Frankfurt, London, Amsterdam, Dublin, and Paris — is expected to rise by an average of 12% during 2026 due to supply constraints and higher development costs.

Kevin Restivo, Head of European Data Center Research at CBRE, said larger and more technically complex data centers require advanced cooling systems and high-specification infrastructure, significantly increasing construction costs.

He added that providers have already started passing these rising costs on to customers as demand strengthens and supply tightens.

European markets with a relative advantage

However, Europe is not equal when it comes to energy costs and access to electricity markets. Analysts point out that the Nordic countries — Norway, Sweden, and Denmark — as well as France, enjoy a relative advantage because electricity prices there remain lower compared with the rest of Europe.

The Nordic countries rely heavily on hydropower and renewable energy sources, while France remains one of Europe’s largest producers of nuclear energy.

This means natural gas plays only a limited or nonexistent role in their electricity pricing systems, providing them with relative protection from fossil fuel price volatility.

Copper prices edged higher on Wednesday amid hopes that the Iran war may be nearing an end, while Chile, the world’s largest copper producer, lowered its production forecasts.

Benchmark three-month copper on the London Metal Exchange rose 0.4% to $13,470 per metric ton by 09:35 GMT, after earlier touching its lowest level since May 8 at $13,350.

LME copper had previously retreated from last week’s more than three-month high of $14,196.50, pressured by profit-taking, a stronger US dollar, and concerns over slowing demand in China, the world’s largest metals consumer.

“The limited gains we are seeing today are mainly driven by improved risk appetite across broader markets, supported by lower oil prices and declining bond yields,” said Ole Hansen, Head of Commodity Strategy at Saxo Bank in Copenhagen.

Oil prices fell around 1% on Wednesday after two Chinese oil tankers exited the Strait of Hormuz, while US President Donald Trump stated that the Iran war would “end very quickly.”

Copper also received additional support after Chile announced lower copper production forecasts, now expecting output to decline by 2% this year, compared with a February forecast that had projected 3.7% growth during 2026.

In other metals markets, nickel on the London Metal Exchange fell 0.3% to $18,745 per ton, as investors monitored Indonesia’s plans to impose greater centralized government control over commodity exports.

Indonesian President Prabowo Subianto said his government would introduce new regulations aimed at strengthening oversight of commodity exports.

Nickel had gained in London on Tuesday due to supply concerns, with the momentum extending into Chinese trading on Wednesday, where the most-active nickel contract on the Shanghai Futures Exchange rose 1.9% to close at 145,390 yuan ($21,368) per ton.

Among other metals, aluminum fell 0.3% to $3,593 per ton, zinc rose 0.5% to $3,530.50, lead was little changed near $1,963, while tin jumped 3.4% to $53,375 per ton.

Oil prices fell by nearly 3% on Wednesday after US President Donald Trump once again stated that the war with Iran would end “very quickly,” although investors remained cautious about the outcome of peace talks as supply disruptions from the Middle East continued.

Brent crude futures fell by $2.97, or 2.7%, to $108.31 per barrel by 10:59 GMT, while US West Texas Intermediate crude dropped by $2.69, or 2.6%, to $101.46 per barrel.

Both benchmarks are heading for their largest daily losses in both percentage and dollar terms in two weeks.

“Prices are likely to retain some upside potential even if an agreement is reached, because supplies will not immediately return to pre-war levels,” said Emril Jamil, research analyst at LSEG.

Both crude benchmarks had already declined by around $1 on Tuesday after US Vice President JD Vance said the United States and Iran had made progress in negotiations. However, Trump also stated that the United States may still need to launch another strike on Iran and that he had been only an hour away from ordering an attack before postponing it.

Citigroup analysts said on Tuesday they expect Brent crude to rise toward $120 per barrel in the near term, arguing that oil markets are still underpricing the risk of prolonged supply disruptions.

Wood Mackenzie also estimated that prices could approach $200 per barrel if the Strait of Hormuz remains largely closed through the end of the year.

Meanwhile, analysts at PVM warned that global oil inventories could fall to critically low levels.

“However, as has recently been observed, market participants still appear somewhat complacent or overly confident regarding the potential consequences of this conflict,” the firm added.

The price spread between Brent crude contracts for next-month delivery and contracts expiring six months later — a key indicator of how traders assess current supply tightness — currently stands near $20 per barrel, well below the levels above $35 seen last month.

Two supertankers exited the Strait of Hormuz on Wednesday, while another tanker continued its journey out after waiting more than two months carrying 6 million barrels of Middle Eastern crude oil.

Even so, the number of ships passing through the strait remains far below the pre-war average of 130 vessels per day.

To offset supply shortages, countries are increasingly relying on commercial and strategic inventories.

In the United States, data from the American Petroleum Institute — according to market sources — showed crude inventories declined for a fifth consecutive week last week, while fuel inventories also fell.

Official data from the US Energy Information Administration is expected later الأربعاء, with a Reuters survey forecasting a decline of around 3.4 million barrels in crude inventories.

In another sign of worsening supply pressures, Britain eased some sanctions to allow imports of diesel and jet fuel refined in third countries using Russian crude oil.