Following the outbreak of war involving Iran, Federal Reserve officials discussed two contrasting scenarios for the U.S. economy: one arguing for interest rate cuts, while the other could necessitate rate hikes.
Minutes from the Federal Open Market Committee (FOMC) meeting held on March 17-18, released on Wednesday, showed that a majority of officials were concerned the conflict could damage the labor market, potentially creating a need to lower interest rates. At the same time, many policymakers emphasized inflation risks, which could ultimately require raising rates.
The meeting records also indicated a growing number of officials urged their colleagues to consider adding language to the Committee's statement referencing the conditions under which interest rate increases might be appropriate.
The minutes stated: "Some participants saw a strong case for the post-meeting statement to include two-sided language regarding the Committee's future policy decisions, reflecting the possibility that it could be appropriate to raise the target range for the federal funds rate if inflation were to persist above target."
At the March meeting, the Fed kept interest rates unchanged within the range of 3.5% to 3.75%.
Overall, policymakers' reaction to the Iran conflict was reflected in concerns regarding both sides of the dual mandate.
The minutes noted: "A substantial majority of participants judged that the risks to inflation were tilted to the upside and the risks to employment were tilted to the downside, with most participants noting that these risks had intensified with developments in the Middle East."
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