During the meeting on March 17-18, the Fed left interest rates unchanged in the range of 3.50-3.75%. Only Stephen Miran was in favor of reducing them by 25 basis points.
Analysts polled by Bloomberg expected such a decision. In the current monetary easing cycle, the Fed has already cut rates by a total of 150 basis points.
After the publication of the minutes, the dollar weakened against the basket of currencies and the yields of American bonds dropped, which shows the sensitivity of markets to signals from the central bank.
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The published minutes of the March meeting also show that the risks for the US economy caused by the outbreak of the conflict in the Middle East are bilateral in nature.
Federal Reserve: More expensive oil could hit the economy
As the minutes show, Federal Reserve representatives are concerned about the potential consequences of the war in Iran for the US economy. As they claim, on the one hand, an increase in inflation is possible, and on the other – a deterioration of the situation on the labor market. Fed members emphasize that the development of the conflict with Iran may further intensify both of these threats.
One of the key risk factors is rising oil prices. According to meeting participants, they may limit the purchasing power of households, tighten financial conditions and slow down economic growth, also outside the United States.
In such a scenario, it would even be possible to justify interest rate cuts if the economic deterioration was significant.
Inflation remains a problem for the Fed
At the same time, many Fed members point out that persistently high inflation may require the opposite reaction – i.e. interest rate increases. The increase in energy prices, including oil, may make it difficult for inflation to return to the target of 2%.
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However, decision-makers emphasize that at this stage it is too early to clearly assess the impact of geopolitical events on the US economy.
Fed members unanimously point out that in the current conditions, monetary policy cannot be conducted according to a rigid plan. It is crucial to respond flexibly to incoming data and changing perspectives.
Although some decision-makers still assume that interest rate cuts will be possible in the future, their moment may be postponed due to persistent inflation.
Labor market exposed to shocks
The protocol also shows that the US labor market remains relatively stable but is susceptible to negative shocks. The majority of meeting participants assess that the risk to employment is skewed downwards.
The low pace of new job creation means that even a slight deterioration in economic conditions may translate into an increase in unemployment.
Cautious forecasts for the coming years
Fed members currently assume a very gradual easing of monetary policy in the coming years – one interest rate cut at the end of 2026 and 2027 and no changes in 2028.
The next Federal Reserve meeting is scheduled for April 27-28. This is when investors will look for further clues regarding the direction of monetary policy.
