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

Federal Reserve officials discussed the possibility of lowering interest rates at their March meeting, despite facing uncertainty from the Iran war and tariffs. The minutes released on Wednesday revealed that most participants believed that the war could lead to the need for easier monetary policy if rising gas prices impacted the labor market and consumers’ wallets.

Policymakers emphasized the importance of remaining “nimble” as they assessed the impact of the war on inflation, which was still above the Fed’s target, and hiring, which had been relatively stagnant over the past year. The minutes indicated that many participants felt it would be appropriate to lower the target range for the federal funds rate if inflation decreased as expected, with the consensus anticipating one rate cut this year.

However, there was also caution expressed regarding a potential softening in labor market conditions, which could necessitate additional rate cuts. Higher oil prices were seen as a threat to households’ purchasing power, financial conditions, and global growth. Despite these concerns, the Federal Open Market Committee voted 11-1 to maintain the benchmark overnight borrowing rate at a range between 3.5%-3.75%.

In terms of a possible rate hike, officials agreed to keep rates steady while monitoring unfolding conditions. There was apprehension that sustained inflation resulting from Middle East hostilities could require rate hikes in the future. The meeting, which took place shortly after the U.S. and Israel’s attack on Iran, led to a surge in energy costs and renewed fears of inflation. Powell highlighted the potential negative long-term effects of raising rates too soon to combat inflation.

Participants acknowledged the ongoing threat of tariffs but believed their impact on inflation would be temporary. Concerns were raised about the job market, with most participants expressing worries about the downside risks to employment. While the economy has shown signs of slowing, with GDP growth rates at 0.7% in the fourth quarter of 2025 and projected to be 1.3% in the first quarter of 2026, the majority of markets expect the Fed to maintain its current stance throughout the year.

Overall, the uncertainty surrounding the Iran war and tariffs has created a challenging environment for Fed officials to navigate. The delicate balance between managing inflation, supporting the labor market, and sustaining economic growth will require careful monitoring and strategic decision-making in the months ahead.