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Fed minutes released Wednesday show officials divided over inflation risks from the Iran war, with most open to possible rate hikes if price pressures persist. While rates were held steady, dissent rose to a 1992 high. Inflation remains above target
US Fed Reserve officials expect rate hike if inflation stays elevated(REUTERS)Minutes released Wednesday show that most Federal Reserve officials at their latest meeting believed further interest rate hikes may be required if the ongoing Iran war keeps pushing inflation higher.
CNBC reported that although the Federal Open Market Committee (FOMC) again voted to maintain its benchmark interest rate in the 3.5 per cent to 3.75 per cent range, the meeting saw four dissenting votes, the highest since 1992, reflecting growing disagreement over the future direction of monetary policy.
Fed officials divided on the impact of the Iran war on inflation
During the meeting, officials debated how the Iran war might impact inflation and how that would influence interest rate policy. Officials remained divided on how long the price impact would last, and whether the post-meeting statement should still signal a bias toward rate cuts as the likely next move.
Several officials noted that rate cuts would be appropriate once it is evident that inflation is returning to the Fed’s two per cent target or if the labour market weakens. However, a majority also said that further tightening could be warranted if inflation continues to remain persistently above the two per cent mark.
Additionally, while officials broadly agreed that the ongoing conflict in Iran would have some “significant implications” for the Federal Reserve as it continues to pursue its dual goals of maximum employment and price stability, they were split on how long the effects on inflation might last.
The document noted that “the vast majority of participants” saw a growing risk that inflation would take longer than expected to return to the Committee’s 2 per cent target.
Rate cut a possibility? Here’s what the minutes suggest
Three of the four “no” votes came from regional presidents who backed the idea that policymakers should keep their options open for rate increases amid persistent inflation pressures. The group also agreed to keep the benchmark federal funds rate steady; however, they objected to the inclusion of language that referenced “additional adjustments” to rates. The phrasing is widely believed to suggest that the next move would be a cut, according to the report.
The minutes noted, “many participants indicated that they would have preferred removing the language from the post-meeting statement that suggested an easing bias regarding the likely direction of the Committee’s future interest rate decisions.”
Powell’s last meeting
The meeting was held against a notable backdrop: it marked the last time outgoing Federal Reserve Chair Jerome Powell chaired the committee, and it came amid rising inflation pressures driven largely by the war and other factors, leaving officials increasingly cautious about the outlook for monetary policy.
President Donald Trump appointed former Governor Kevin Warsh to head the US central bank. He was appointed after a lengthy campaign that involved a total of 11 candidates. The US President, while appointing Warsh, made it clear that he expects the bank to cut rates.
According to reports, market pricing suggests a growing chance that the Federal Reserve’s next move could be a rate hike, potentially by late 2026 or early 2027.
Inflation had been moving closer to the Fed’s two per cent target through 2025 and into early this year. But the war has altered the outlook, with higher energy prices pushing most inflation readings above three per cent.
While policymakers often treat such supply-driven shocks, like an oil price surge, as temporary, underlying price pressures are also building. Core inflation, which excludes food and energy, has continued to rise. Goldman Sachs expects the Fed’s main inflation gauge to show an annual rate of 3.3 per cent in April when the data is released next week.
Key Takeaways
- The Iran war has significantly impacted inflation, pushing rates above the Fed's target.
- Federal Reserve officials are divided on the future direction of interest rates.
- There is a consensus that more tightening may be necessary if inflation remains persistently high.
About the Author
Swati Gandhi
Swati Gandhi is a digital journalist with over four years of experience, specialising in international and geopolitical issues. Her work focuses on foreign policy, global power shifts, and the political and economic forces shaping international relations, with a particular emphasis on how global developments affect India. She approaches journalism with a strong belief in context-driven reporting, aiming to break down complex global events into clear, accessible narratives for a wide readership.<br><br> Previously, Swati has worked at Business Standard, where she covered a range of beats including national affairs, politics, and business. This diverse newsroom experience helped her build a strong grounding in reporting, while also strengthening her ability to work across both breaking news and in-depth explanatory stories. Covering multiple beats early in her career has helped her be informed about her current work, allowing her to connect domestic developments with wider international trends.<br><br> At Live Mint, she focuses on international and geopolitical issues through a business and economic lens, examining how global political developments, foreign policy decisions, and power shifts impact markets, industries, and India’s strategic and economic interests.<br><br> She holds a Bachelor’s degree in English (Honours) from the University of Delhi and a Master’s degree in Journalism and Mass Communication from Guru Gobind Singh Indraprastha University. Her academic training has shaped her emphasis on precision, analytical rigour, and clarity in writing. Her interests include global political economy and the intersection of geopolitics with business.<br><br> Outside work, Swati focuses on exploring her passion and love for food. From fancy cafes to street spots, Swati explores food like a true foodie.
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