Minutes Show Fed Officials See Differing Risks From Iran War

Summary

• Fed officials at the March meeting centered discussions on the economic risks from the Iran war and tariffs, noting the economy's resilience but incomplete tariff pass-through.
• Most participants raised concerns that a protracted war could soften the labor market, warranting additional interest rate cuts.
• Many participants highlighted the risk of inflation remaining elevated longer than expected, which could necessitate rate increases.
• The vast majority of officials noted progress toward the 2% inflation target is likely slower than previously anticipated.
• Labor market conditions were seen as vulnerable to adverse shocks, with war potentially reducing business sentiment and hiring.
• Officials presented a two-sided risk assessment for future rate decisions, reflecting divergent inflation and employment outcomes.
• Most felt it was too early to judge the war's full economic impact, indicating high near-term policy uncertainty.
• A couple of participants pushed their expected timing for rate cuts further into the future.
• One dissenting participant argued current rates are still restrictive and increasing risks to the labor market.