Federal Reserve Still Saw Rate Cuts as a Possibility in March Meeting | National News

The Federal Reserve tried to look beyond the Iran war at its March meeting, holding to the belief that inflation could moderate enough after initial oil price and import tariff shocks, minutes of the gathering released on Wednesday show.

The central bank’s monetary policy committee voted 11-1 to hold interest rates steady at the meeting, with governor Stephen Miran the only participant to favor a quarter-point cut. But overall, the minutes reflect a continued desire to lower rates at some point this year.

“Many participants judged that, in time, it would likely become appropriate to lower the target range for the federal funds rate if inflation were to decline in line with their expectations,” the minutes said. “A couple of these participants highlighted that, in their projection for the appropriate path of the policy rate, they had pushed their assessment of the most likely timing of rate cuts further into the future in light of recent readings on inflation.”

In other comments, the minutes reflect the uncertainty over the war in Iran that had begun just over two weeks before the Fed met. And they also acknowledged the soft labor market and continued inflation above the central bank’s 2% goal.

“Participants generally anticipated that the pace of real GDP (gross domestic product) growth would remain solid in 2026,” according to the minutes. “Most participants expected growth to be supported by AI-related investment, continued favorable financial conditions, fiscal policy, or changes in regulatory policy. Most participants cautioned that the recent developments in the Middle East had raised the uncertainty surrounding their outlook for economic activity and had increased the associated downside risks.”

The minutes come as the next two days will offer two readings on the current state of inflation. First up on Thursday is the personal consumption expenditures price index, a measure that the Fed follows closely. In January, the PCE rose at an annual rate of 2.8%, down from 2.9% in December.

But the core index, excluding volatile food and energy costs, rose at an annual rate of 3.1%, compared to 3% a month earlier.

Falling energy costs have actually led to some disinflation since the beginning of the year, but since the U.S. and Israel launched attacks on Iran at the end of February, the price of oil has soared. It is now retreating since the announcement Tuesday of a two-week ceasefirebut that will not likely show up in the PCE or the consumer price index for March, set to be released Friday morning.

Indeed, estimates for the March CPI have it rising by as much as 0.8% to 1% from February, pushing the annual rate to 3.1% or higher after February’s 2.4% reading.

How quickly it will reverse course remains to be seen, depending on whether the ceasefire leads to a more permanent deal and, ultimately, oil flowing freely through the critical Strait of Hormuz and eventually rebalancing global energy markets. The price of oil on world markets fell by 13% to 15% on Wednesday to around $95 a barrel.

“March consumer inflation will break disinflation,” Wells Fargo economists wrote Tuesday in their April economic outlook. “Higher energy prices will feed quickly into prices at the pump, ending the two‑year disinflation trend. With oil staying elevated and no clear resolution in the Middle East, we expect firmer inflation, with headline PCE peaking at a year-ago pace of 3.7% in Q2 and remaining sticky in a 2.7-3.1% range through year‑end.”

Already, consumers have been paying higher prices at the gas pump and for groceries and other goods that are affected either by elevated transportation or fertilizer costs. Those may not recede as quickly as they went up, pending a clear resolution of the threat of hostilities in the Middle East.

“Iran and the U.S. face different constraints,” BCA Research noted in a Wednesday report. “Iran will not risk total destruction of its civilian infrastructure, as discontent toward the regime was already elevated before the war. In the U.S., public support for the conflict is weak as the midterms approach.”

BCA added that President Donald Trump “was re-elected on the back of several waves of discontent, with inflation as the electorate’s main concern, but higher gasoline prices and mortgage rates are worsening affordability after years of above-target inflation.”

Prior to the war’s start on Feb. 28, analysts gave the Fed low chances of interest rate cuts before late in the year, with perhaps only one on tap.

While that remains the most likely outcome and is the Fed’s official projection, markets also give reasonable odds on a cut at all in 2026.