Federal Reserve Chairman Jerome Powell speaks during a press conference after a meeting of the Federal Open Markets Committee at the Federal Reserve on March 18, 2026 in Washington, DC.
Anna Moneymaker getty images
Federal Reserve officials at their March meeting are still expected to lower interest rates this year, despite a high level of uncertainty from the Iran war and tariffs, according to minutes released Wednesday.
Most participants said the war could result in the need for easier monetary policy if rising gas prices hit the labor market and consumer wallets.
Policymakers said they would need to remain “nimble” as they watched the war’s impact on inflation, which remains above the Fed’s target, and hiring, which has been mostly flat over the past year.
“Many participants decided that, over time, it would be appropriate to lower the target range for the federal funds rate if inflation falls in line with their expectations,” the minutes said.
The consensus forecast a cut this year, unchanged from the last update in December.
The summary further said that “labor market conditions will soften further, which may necessitate additional rate cuts, as higher oil prices could reduce the purchasing power of households, tighten financial conditions and reduce growth abroad.”
Ultimately, the rate-setting Federal Open Market Committee voted 11-1 to keep the benchmark overnight lending rate targeted in a range between 3.5%-3.75%. While there was consensus on keeping rates stable, as they saw it, officials also expressed concern that Middle East hostilities could result in continued inflation that might require rate increases.
“Most participants commented that it is too early to know how developments in the Middle East will affect the U.S. economy and that it would be prudent to continue monitoring the situation and assessing the implications for the appropriate stance of monetary policy,” the minutes said.
The March 17-18 meeting came just a week after the US and Israel attacked Iran, causing energy costs to rise and rekindling fears of a surge in inflation. Oil fell sharply following a ceasefire announced on Tuesday evening, although the durability of the agreement is still in question.
Assessing conditions so far, meeting participants said they still expected inflation to continue moving toward the Fed’s 2% target, despite the turmoil caused by the war. He said tariffs remain a threat, although most view the impact of the duties as temporary when it comes to calculating inflation.
Chairman Jerome Powell said in a recent public appearance that raising rates now to prevent inflation from rising could have negative long-term effects given the delayed impact of Fed rate moves.
At the same time, officials expressed concerns about the labor market not creating enough jobs to keep the unemployment rate stable. However, job growth has come almost exclusively from health care-related sectors, raising concerns about sustainability and growth prospects.
“The vast majority of participants decided that the risks to the employment side of the mandate were tilted to the downside,” the minutes said. “In particular, many participants cautioned that, in the current situation of low rates of net job creation, labor market conditions appear vulnerable to adverse shocks.”
The market broadly expects the Fed to remain on hold for the rest of the year. However, traders raised the possibility of a possible cut due to the ceasefire.
Broadly speaking, the economy is showing signs of a slowdown, which has raised fears of a recession among some on Wall Street.
GDP grew at just 0.7% in the fourth quarter of 2025 and is on track to grow at only 1.3% in the first quarter of 2026.
