The Federal Reserve is showing growing openness to raising interest rates after March discussions highlighted concerns over persistent inflation, worsened by the U.S.-Israeli war with Iran, according to minutes released Wednesday.
At the March 17-18 Federal Open Market Committee meeting, officials noted that inflation remained above the Fed’s 2% target, particularly as oil prices spiked due to the conflict in the Middle East. Some members suggested that future rate hikes might be needed if inflation stayed high.
In January, only a small group of officials were open to possible hikes. By March, the number had grown, reflecting worries that the conflict could keep inflation elevated for longer. Despite the concerns, many policymakers also considered that rate cuts might be needed later if prolonged conflict slowed economic growth and weakened the labor market.
The Fed held its benchmark rate steady at 3.50%-3.75%, signaling caution while monitoring both inflation risks and employment impacts. The minutes noted that the war disrupted economic forecasts, creating conflicting pressures: higher oil prices could push inflation up, but the conflict could also reduce growth, limit household spending, and tighten financial conditions globally.
Officials said they were unlikely to adjust rates until the impact on inflation and jobs became clearer. Economic projections showed higher inflation expectations for 2026 but little change in unemployment. The Fed also highlighted other risks, including government policy changes and the growing influence of AI on economic productivity.
The minutes underline the challenge for the Fed: balancing inflation control against maintaining full employment while global geopolitical tensions add uncertainty to the economic outlook.
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