Fed officials saw inflation and job risks from Iran war — and stayed put

Rising energy prices from the Iran war pushed inflation risks higher, prompting some Federal Reserve officials to argue for the possibility of another rate hike if inflation stayed above target — even as others warned the conflict could weaken the labor market and require rate cuts. The Federal Open Market Committee held the benchmark federal funds rate at 3.5% to 3.75% during its March 17-18 meeting, choosing to stay neutral amid sharply diverging risks. The war, which erupted weeks earlier, had already sent global energy costs surging, increasing upward pressure on inflation. Many Fed officials believed prolonged conflict would lead to persistent energy price increases, which could in turn push up underlying inflation. Some warned that with inflation already above target for five years, longer-term expectations might become more sensitive to energy shocks. At the same time, the labor market appeared vulnerable: job growth was already weak, and many participants cautioned that adverse shocks could tip conditions downward. While most expected the unemployment rate to remain stable, the majority saw downside risks. Policymakers considered adding language to their post-meeting statement to reflect that rate hikes could be appropriate under certain inflationary conditions — a shift from January, when only 'several' officials supported such a stance. By March, 'some' backed it, indicating a larger group. Despite this, the FOMC refrained from signaling any immediate action, leaving rates unchanged and maintaining a projection for just one rate cut by 2026. The committee remained on the sidelines, paralyzed not by inaction but by symmetry: the war posed equal risks of inflation and recession, and the Fed was unwilling to choose its bet.