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

Federal Reserve officials, during their March 17-18 policy meeting, maintained their expectation to cut interest rates once this year, according to minutes released Wednesday, despite significant economic uncertainty stemming from the conflict in the Middle East and ongoing tariff pressures. The central bank's policymakers, acknowledging the war's potential to drive up energy costs and inflation, emphasized the need to remain "nimble" in their approach as they balance the dual risks of persistent price pressures and a softening labor market. The minutes revealed a cautious consensus among the rate-setting Federal Open Market Committee (FOMC), which voted 11-1 to hold the benchmark federal funds rate steady in a range of 3.5% to 3.75%. While most participants judged it would eventually become appropriate to lower rates if inflation declines as expected, they expressed heightened concern that the hostilities could instead lead to sustained inflation, potentially necessitating future rate hikes. Officials noted it was too early to fully assess the war's impact on the U.S. economy, prompting a stance of vigilant monitoring. The meeting occurred just weeks after a U.S. and Israeli attack on Iran, which triggered a surge in oil prices and renewed inflation fears, though a recently announced ceasefire had temporarily eased some energy market pressures. Beyond geopolitical risks, the discussion highlighted underlying vulnerabilities in the domestic economy. Policymakers pointed to a labor market showing signs of strain, with job growth concentrated almost exclusively in healthcare sectors and net job creation at low rates, making conditions "vulnerable to adverse shocks." Despite the tumult, officials still projected inflation would continue moving toward the Fed's 2% target, viewing the impact of tariffs as likely temporary. However, economic data signaled a slowdown, with fourth-quarter 2025 GDP growth at just 0.7% and first-quarter 2026 tracking at 1.3%, leading some Wall Street analysts to raise recession expectations. Chair Jerome Powell has publicly cautioned that raising rates preemptively could have negative longer-term effects due to the lagged impact of monetary policy.