Federal Reserve Chairman Jerome Powell speaks during a press conference after the Federal Reserve Board’s Federal Open Market Committee meeting in Washington, DC on March 18, 2026.
Anna Moneymaker | Getty Images
Fed officials still expected to cut interest rates this year despite high uncertainty from the Iran war and tariffs at their March meeting, according to minutes released Wednesday.
A majority of participants said monetary easing could be necessary if war-induced increases in gasoline prices hit the labor market and consumers’ wallets.
Policymakers said they needed to remain “agile” given inflation, which continues to exceed the Fed’s target, and the war’s impact on employment, which has remained roughly flat for the past year.
“Many participants concluded that if inflation declines as expected, it would likely be appropriate to lower the target range for the federal funds rate over time,” the minutes read.
The consensus is for one rate cut this year, unchanged from the last update in December.
Furthermore, the summary expressed caution: “A significant rise in oil prices could reduce household purchasing power, tighten financial conditions, and suppress overseas growth, which could lead to further softening of labor market conditions and justify further interest rate cuts.”
Ultimately, the Federal Open Market Committee, which decides interest rates, voted 11-1 to keep the target overnight borrowing rate in the range of 3.5% to 3.75%.
Is there a possibility of hiking?
The consensus was to keep rates unchanged as the situation evolves, with officials also expressing concern that hostilities in the Middle East could lead to sustained inflation that would require 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 judged it prudent to continue to monitor the situation and assess the implications for the appropriate monetary policy stance,” the minutes said.
The March 17-18 talks came just a week after the United States and Israel launched attacks on Iran that renewed concerns about rising energy costs and spiking inflation. The ceasefire announced on Tuesday night caused oil prices to plummet, but big questions remain about the deal’s durability.
In assessing the situation so far, conference participants said they still expected inflation to continue toward the Fed’s 2% goal despite the disruption caused by the war. Although they viewed the impact of tariffs as temporary in terms of inflation calculations, they noted that tariffs remain a threat.
Chairman Jerome Powell said in recent public appearances that raising interest rates now to stem a spike in inflation could have negative long-term implications, given the lagged impact of the Fed’s interest rate moves.
At the same time, officials expressed concern about the labor market creating enough jobs to stabilize the unemployment rate. However, most of the employment growth has come from healthcare-related sectors, raising concerns about stability and growth potential.
“The majority of participants judged that the employment risks of the obligation were biased to the downside,” the minutes said. “In particular, many participants warned that labor market conditions appear vulnerable to negative impacts in the current context of low net job creation.”
Markets generally expect the Federal Reserve to keep interest rates unchanged for the rest of the year. However, the ceasefire has led traders to raise the possibility of a rate cut.
Broadly speaking, the economy is showing signs of slowing, and some on Wall Street are raising expectations for a recession.
Gross domestic product is expected to grow at just 0.7% in the fourth quarter of 2025, and only 1.3% in the first quarter of 2026.
