Fed officials still foresee rate cut this year, despite war impacts, minutes show

At their March meeting, Fed officials expected to cut interest rates this year despite high levels of uncertainty from the Iran war and tariffs, according to minutes released Wednesday.

Most respondents said the war could lead to the need for easier monetary policy if rising gas prices affect the labor market and consumer wallets.

Policymakers must remain “nimble” in assessing the war’s impact on inflation, which remains above the Fed’s target, and hiring, which was mostly flat last year, he said.

“Many participants agreed that it would likely be appropriate to reduce the federal funds rate target range over time if inflation falls in line with their expectations,” the minutes said. The statement was included.

The consensus called for a cut this year, unchanged from the last update in December.

The summary then noted a warning about “further softening in labor market conditions that may require additional interest rate cuts, largely because higher oil prices could reduce household purchasing power, tighten financial conditions and dampen growth abroad.”

Ultimately, the rate-setting Federal Open Market Committee voted 11-1 to keep the benchmark overnight borrowing rate in the 3.5%-3.75% range.

The consensus was to keep rates steady as conditions improved; officials have also expressed concern that hostilities in the Middle East could result in sustained inflation that could necessitate interest rate hikes.

“Most participants commented that it was too early to know how developments in the Middle East would affect the U.S. economy and decided that it was prudent to continue monitoring the situation and evaluate the implications regarding the appropriate stance of monetary policy,” the minutes said. expressions were used.

The March 17-18 meeting took place just a few weeks after the United States and Israel launched an attack on Iran; This attack caused a rise in energy costs and revived fears of rising inflation. The ceasefire announced on Tuesday evening led to a sharp decline in oil prices, but the durability of the agreement is still highly doubtful.

In assessing conditions so far, meeting participants said they still expect inflation to continue moving toward the Fed’s 2% target, despite the turmoil caused by the war. While most people view the impact of tariffs as temporary when it comes to accounting for inflation, they noted that tariffs remain a threat.

Chair Jerome Powell recently said in a public statement that raising interest rates now to stem a rise in inflation could have negative long-term effects, given the lagging impact of the Fed’s interest rate moves.