Fed minutes reveal cards. The war with Iran will hit Americans' wallets

Fed representatives assess the risk arising from the war with Iran as bilateral – according to the minutes of the last Fed meeting. The minutes also show that high inflation for a longer period of time could justify interest rate increases.

“The vast majority of meeting participants considered the risk of rising inflation and the risk of declining employment to be elevated, and most participants noted that these risks had increased with developments in the Middle East. In particular, most meeting participants expressed concerns that a prolonged conflict in the Middle East could lead to a further deterioration in labor market conditions, which could justify further interest rate cuts, as significantly higher oil prices could reduce household purchasing power, tighten financial conditions and depress economic growth abroad.” written in the minutes of the US Federal Reserve meeting on March 17-18.

“Many meeting participants raised the risk of inflation remaining elevated for longer than expected in the face of continued increases in oil prices, which may require interest rate increases to help bring inflation down to the Committee's 2 percent target and keep long-term inflation expectations stable. However, most meeting participants reiterated that it is too early to predict how developments in the Middle East will impact the U.S. economy and felt it would be prudent to continue to monitor the situation and assess its impact on the appropriate policy stance. monetary policy,” it added.

Fed members indicated that in light of high uncertainty about the economic outlook, monetary policy should not be on a predetermined path.

“With respect to the outlook for monetary policy, in light of increased levels of economic uncertainty, meeting participants emphasized the importance of flexibly adjusting the policy stance in response to emerging data, the changing outlook and the balance of risk factors. Many meeting participants recognized that it would likely be appropriate to lower the target range for the federal funds rate over time if inflation declines as they expect,” the minutes said.

“Several of these meeting participants emphasized that in their forecasts for the appropriate path of the benchmark rate, in light of recent inflation readings, they had deferred their assessment of the most likely timing of interest rate cuts. Some meeting participants felt that there was a strong case for a bipartisan description of the Committee's future interest rate decisions in a post-meeting statement, reflecting the possibility that upward adjustments to the target range for the federal funds rate might be appropriate if inflation remained above target. All meeting participants agreed that monetary policy is not on a predetermined path and will be determined from meeting to meeting,” it added.

The protocol indicated that the US labor market may be susceptible to negative shocks.

“The majority of meeting participants expected the unemployment rate to remain low and that net job creation and labor force growth would also remain low, while several meeting participants expected the labor market situation to deteriorate. The vast majority of meeting participants saw the risk to employment as skewed to the downside. In particular, many meeting participants warned that in the current environment of low net job creation, the labor market situation appears vulnerable to negative shocks,” it said.

“Meeting participants predicted that with appropriate monetary policy, inflation would gradually decline toward the Committee's 2 percent target once the impact of increased tariffs and higher oil prices fades. Meeting participants generally expected that the impact of tariffs on the prices of basic goods would decline this year, although they assessed that the pace and timing at which these effects would fade had become more uncertain since the January meeting,” it added.

After the meeting on March 17-18, the Fed left interest rates unchanged. in the USA unchanged in the range of 3.50-3.75%. Stephen Miran, who was in favor of lowering interest rates, voted against the decision. by 25 bp.

Analysts polled by Bloomberg expected that interest rates will remain unchanged. During the previous meeting, the Fed lowered interest rates. by 25 bp. During this monetary easing cycle, the Fed lowered interest rates by 150 basis points.

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Fed members forecast one interest rate cut. at the end of 2026, then one at the end of 2027 and no reductions at the end of 2028.

The next meeting of the Reserve is scheduled for April 27-28.

The dollar is weakening against the basket of currencies by 0.5%. to 99 points, and the profitability of 10-year Treasuries falls by 5 basis points. to 4.29 percent (PAP Business)

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