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Home/Markets & Investing/FED INTEREST RATE DECISION

Fed policymakers shift toward rate hike openness as Middle East conflict fuels inflation risk

SW

Skyler Whitmore

Fed interest rate decision · Apr 9, 2026

Fed policymakers shift toward rate hike openness as Middle East conflict fuels inflation risk

Source: DojiDoji Data Terminal

Households may face reduced purchasing power as a result of a protracted conflict in the Middle East. Federal Reserve policymakers expressed concern in the minutes of their March 17-18 meeting that higher oil prices could tighten financial conditions and soften labor market conditions, which would warrant additional rate cuts to support economic growth.

Related Brief3d ago
monetary policy

The Fed’s rate cut plans are now tethered to oil prices and war, not just inflation

The Federal Reserve’s plan to cut interest rates this year now depends less on a predictable inflation trajectory and more on the volatility of oil prices and the duration of Middle East conflict. At its March 17-18 meeting, the Fed held its benchmark rate steady in the 3.50% to 3.75% range, but internal divisions revealed a growing concern: inflation could remain above the 2% target not just from domestic demand, but from energy shocks tied to war. Many policymakers noted that the surge in oil prices—driven by the US-Israeli conflict with Iran—posed a real risk of feeding into core inflation, especially if higher input costs became permanent. Some argued the Fed should adopt a two-sided policy stance, leaving open the possibility of rate hikes if inflation proved sticky, a shift from January when only “several” officials supported such a move. Yet even as inflation risks grew, most participants still expected rate cuts, not hikes, because an extended conflict could weaken growth, reduce household purchasing power, and soften labor markets. The Fed’s own staff revised their outlook to reflect higher inflation and weaker job growth, citing Middle East developments, government policy changes, and AI adoption. Then, one day before the minutes were released, a ceasefire between the US and Iran cut oil prices by more than 15% to around $92 a barrel—precisely the kind of reversal that makes the Fed’s next move unpredictable. The path forward is no longer a straight line from inflation to rate cuts. It’s a博弈 between energy markets and economic fragility.

This outlook competes with a growing openness to interest rate hikes. In January, only "several" officials were open to tighter monetary policy. By March, "many participants" pointed to the risk of inflation remaining elevated above the 2% target due to a persistent increase in oil prices following the February 28 outbreak of war. The conflict disrupted global shipping and caused oil prices to jump more than 50%.

Related Brief2d ago
monetary policy

Fed Officials Consider Rate Hikes to Counter Middle East Energy Price Surges

The target range for the federal funds rate may be adjusted upward. This possibility is reflected in a new two-sided description of future interest-rate decisions. The Federal Open Market Committee held the benchmark policy rate in a range of 3.5% to 3.75% during its March 17-18 meeting, but policymakers now worry that prolonged conflict in the Middle East will lead to persistent increases in energy prices. Global energy costs surged for three weeks following that meeting. Because inflation has run above target for five years, officials noted that long-term inflation expectations may become more sensitive to these energy price increases. This volatility leads to persistent increases in underlying inflation, which may prompt officials to consider raising interest rates if inflation remains above target levels.

Policymakers judged that higher energy prices could increase input costs that pass through to core inflation, raising the risk that inflation would prove more persistent than anticipated since 2021. Some participants suggested a "two-sided description" of future interest rate decisions in the policy statement to reflect the possibility of upward adjustments to the target range for the federal funds rate.

Related Brief3d ago
monetary policy

Middle East Conflict Uncertainty Keeps Federal Reserve Rates Steady

Households' purchasing power is reduced when oil prices rise substantially. This reduction in purchasing power, alongside tightened financial conditions and reduced growth abroad, is the downstream consequence of the Middle East conflict. The Federal Reserve Open Market Committee (FOMC) held its benchmark overnight interest rate steady on March 17-18 amid elevated inflation and lackluster job gains. Officials expressed concern that the conflict in the Middle East, then in its third week, was an additional source of uncertainty. Participants noted that a prolonged conflict would lead to more persistent increases in energy prices, which would then pass through to the Fed's core inflation measure. Officials also noted that the conflict had weakened investor confidence, as evidenced by declines in U.S. equities. A protracted conflict could weigh on business sentiment and and result in a further softening in labor market conditions. This impact on the jobs outlook is cited as a potential reason for rate cuts later in the year.

Despite these risks, the Fed held its benchmark overnight interest rate steady in the 3.50%-3.75% range in March. The central bank signaled it was unlikely to change its policy rate until it was clearer whether the impact on inflation or the job market seemed to be the greater risk.

Related Brief10h ago
monetary policy

Oil Spikes and Iranian War Uncertainty Lock Interest Rates

The Dow fell 1.6%, the S&P 500 fell 1.4%, and the Nasdaq lost 1.5% to their lowest levels since November. The VIX Composite spiked nearly 10%. These declines followed the Federal Reserve's March 18 policy meeting where interest rates remained unchanged. Fed Chair Jerome Powell cited inflation concerns and uncertainty caused by the war in Iran as reasons for the stand pat. Brent crude oil closed at $105 a barrel, up nearly 6%, while the nationwide average average for a gallon of gas reached $3.86. Investors sold bonds, pushing the 10-year U.S. note yield up nearly 6 basis points to 4.26%.

An extended conflict in the Middle East would do enough damage to economic growth that additional rate cuts would be warranted.

Related Brief3d ago
monetary policy

Borrowing costs will not drop until late 2027

Consumers and businesses will not see cheaper loans until late 2027. Financial markets have already priced in this shift, reversing expectations held at the start of the year. The Federal Reserve kept its key rate at 3.6% in the March meeting. This decision follows a jump in inflation to 3.4% year-over-year in March, up from 2.4% in February. The surge was driven by rising oil prices tied to the conflict in Iran. Within the Fed, the number of policymakers supporting the possibility of a rate hike has increased from 'several' in January to 'some'. In Federal Reserve terminology, 'some' indicates a larger group than 'several'. Chair Jerome Powell stated that further cuts depend on clear evidence of cooling inflation. The result is that markets anticipate no rate cuts until late 2027.

Fed interest rate decision

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