Fed's March minutes highlight 'two-way risk' from Iran war

Federal Reserve officials at their March meeting debated the "two-way risk" facing the U.S. economy from the war in Iran, with some members seeing a case for rate cuts while others warned of inflationary pressures that could require hikes. According to the Federal Open Market Committee (FOMC) minutes released on April 8, a majority of members expressed concern that the conflict could weaken the labor market, potentially necessitating a rate cut. At the same time, a majority also pointed to inflation risks that could make a rate hike necessary. The minutes stated that some participants felt there was sufficient reason to describe future policy decisions as having two-way risk, acknowledging that raising rates could be appropriate if inflation remains persistently above target. An overwhelming majority of attendees assessed that both upside risks to inflation and downside risks to employment were elevated, with these risks heightened by developments in the Middle East. Since the meeting, many Fed officials have reportedly leaned toward keeping rates on hold to assess the war's impact. The Fed maintained its benchmark interest rate in the 3.50-3.75% range at the March meeting.