Fed officials signaled a potential need for rate increases if higher oil and gas prices keep inflation elevated longer than expected, even as the committee left the federal funds rate around 3.6% after three cuts at the end of 2025 and steady through early 2026.

Fed Governor Beth Hammack noted a preference for holding rates steady for now, while acknowledging scenarios where either hikes or cuts could occur depending on labor market strength and evolving inflation.

Minutes warn that Middle East developments, policy shifts, and AI adoption could raise risks to growth and inflation, underscoring an uncertain outlook.

Participants warned a drawn-out conflict could weaken labor markets, squeeze households via higher oil prices, tighten financial conditions, and slow foreign growth, potentially warranting further rate reductions.

Despite inflation risks, most participants still anticipated rate cuts as part of the baseline outlook, with some arguing a protracted Middle East conflict could justify additional cuts to support growth and employment.

Powell indicated that alternative scenarios were considered and that the duration and economic impact of the conflict remain uncertain, with discussions of multiple outcomes.

Minutes reflect evolving sentiment on inflation risks versus growth and job momentum amid energy-driven cost pressures.

Markets initially cheered the minutes’ hawkish tone on the possibility of a broader Iran settlement, while rate futures pared bets on near-term easing but still priced in few hikes ahead.

Market expectations have shifted toward no rate cuts until late 2027, signaling a pause rather than easing amid geopolitical and oil-price uncertainty.

Oil rose to around $100 a barrel, influencing inflation projections for 2026 and broader price pressures.

March projections updated inflation paths show higher year-end PCE inflation, with the outlook for 2026 rising from previous estimates.

Officials remain focused on balancing stimulus for growth with inflation restraint amid geopolitical price shocks and evolving conditions.