A significant portion of Federal Reserve officials signaled at their latest meeting that additional interest rate increases may be necessary if inflation remains elevated due to the ongoing conflict in Iran, according to recently published meeting minutes.
Despite these concerns, the Federal Open Market Committee (FOMC) maintained its target federal funds rate at 3.5%-3.75%, though the meeting saw the highest number of dissenting votes on policy direction since 1992.
The minutes from the April 28-29 meeting reflect increased uncertainty within the committee regarding the appropriate path for monetary policy. Most policymakers determined that stronger action on rates could be needed if price growth continues to exceed the central bank’s 2% target.
Disagreement was evident over a statement that suggested an ongoing leaning toward easing policy; several participants advocated for its removal, although the language ultimately remained after procedural review.
Fed officials debated the likely duration and impact of inflationary pressures stemming from the Iran war. While some FOMC members highlighted the potential for prolonged price increases, others preferred to retain the committee’s previous inclination toward possible rate cuts.
However, the prevailing sentiment shifted more toward caution, with most participants expecting the policy rate to remain unchanged for longer than previously projected. Furthermore, the vast majority noted that inflation may take more time to recede to target levels, even if labor market conditions are forecasted to stay stable in the near term.
This meeting marked the final session chaired by Jerome Powell. The leadership now passes to former Governor Kevin Warsh, appointed by President Donald Trump following a competitive selection process. While the Trump administration had publicly favored rate reductions, meeting minutes indicate that convincing committee members to cut rates may prove difficult. Trump has more recently moderated his stance on immediate cuts.
Market data point to expectations of a rate hike as the likely next policy move, projected to occur by late 2026 or early 2027. Bond markets worldwide have begun reflecting these expectations, with the U.S. 2-year Treasury yield rising from below 3.40% in late February to over 4.10% this week, its highest point in 15 months.
Previously, inflation had shown signs of moderating toward the Fed’s objective through 2025 and into early 2026. However, the conflict in Iran and related energy price jumps have driven most key inflation measures above 3%, pushing core inflation higher as well. Market analysts, including Goldman Sachs, anticipate that the Fed’s prime inflation measure will reach annualized rates of 3.3% for April, with official data set for release next week.
