Federal Reserve officials at their most recent policy meeting signaled a growing readiness to raise interest rates if inflation, stoked by the Iran conflict, remains persistently above the central bank's 2% target. The minutes from the April 28–29 Federal Open Market Committee meeting, released Wednesday, exposed deep divisions among policymakers and a shift away from the long-standing easing bias.
The FOMC voted to hold the benchmark federal funds rate steady at 3.5%–3.75%, but the meeting featured four dissents—the highest number since 1992—from regional Fed presidents who opposed language implying that the next rate move would likely be a cut. “A majority of participants highlighted that some policy firming would likely become appropriate if inflation were to continue to run persistently above 2 percent,” the minutes stated.
The Iran war's impact on energy prices and supply chains was a central concern. Officials noted that the conflict had driven up oil, shipping, and fertilizer costs, feeding into both headline and core inflation. Goldman Sachs now expects the Fed’s preferred inflation gauge to show an annual rate of 3.3%. Many participants said the war would have “significant implications” for the Fed's dual mandate, and the vast majority saw increased risks that inflation would take longer to return to target.
Financial markets have already begun pricing in tighter policy. Futures now imply a strong likelihood of a 25-basis-point rate hike by late 2026 or early 2027. Options markets assign around a 30% probability to a hike by Q1 2027. The labor market remains stable, with unemployment at 4.3% in March, but wage growth has cooled to 3.5% year-over-year.
The meeting was the last chaired by Jerome Powell before he steps down. Former Fed Governor Kevin Warsh, selected by President Trump, is set to be sworn in on Friday. Warsh has pledged to maintain the central bank’s independence, despite Trump's public preference for lower rates. The minutes also showed discussions on extending swap line durations and renewing liquidity arrangements with other central banks.
With inflation pressures mounting and geopolitical uncertainty high, the era of anticipated rate cuts appears to be giving way to a more hawkish outlook, a shift that could weigh on risk assets including cryptocurrencies.
