JAKARTA – The minutes from the Federal Open Market Committee (FOMC) meeting held on April 28-29 reveal that members remain deeply concerned about the economic uncertainties stemming from the war involving Iran.
According to reports from CNBC, a majority of Federal Reserve officials indicated during their latest session that further interest rate hikes could become necessary if the conflict continues to exacerbate inflationary pressures.
Although the FOMC opted to maintain the federal funds rate within the target range of 3.5% to 3.75%, the meeting was notable for four dissenting votes—the highest level of internal disagreement seen since 1992. This suggests a growing divide among policymakers regarding the future trajectory of monetary policy.
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While some participants acknowledged that rate cuts would be appropriate once inflation moves reliably toward the Fed’s 2% target or if the labor market shows signs of weakness, the prevailing sentiment was more hawkish. Most participants emphasized that tightening policy would likely be required should inflation remain consistently above the 2% threshold.
“Generally, participants assessed that persistent high inflation figures, combined with uncertainty regarding the duration and economic implications of the conflict in the Middle East, may necessitate maintaining current policy for longer than previously anticipated,” the minutes stated.
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Some members suggested that rate cuts remain on the table, contingent on clear evidence of stabilized inflation or a significant cooling in the labor market. However, the majority maintained that “policy strengthening”—a term frequently used by the Fed to signal rate hikes—could be essential if inflation proves stubborn.
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There is a narrow path for optimism, however. Some officials indicated that if the war were to end swiftly, rate cuts could be justified by the end of the year, provided that the inflationary impacts of tariffs and rising energy costs dissipate. Conversely, others expressed concern that sustained high energy prices, coupled with ongoing tariffs, could broaden inflationary pressures. Such a scenario could destabilize long-term inflation expectations and force the Fed into a difficult trade-off between its dual mandate of achieving maximum employment and maintaining price stability.
Citing data from Kitco, the staff review of financial conditions noted that the conflict in the Middle East remains a primary driver of volatility in asset prices. While short-term inflation expectations have ticked upward, the outlook for 2027 and beyond remains largely anchored. Surveys and market-based inflation compensation measures indicate that long-term expectations continue to hover near the Committee’s 2% target.
Regarding monetary policy expectations, market participants currently anticipate minimal changes to the federal funds rate target range for the remainder of the year. Current options pricing reflects approximately a 30% probability of a rate hike in the first quarter of 2027. Meanwhile, the unemployment rate is projected to remain near the staff’s long-term estimates through next year, with a slight dip expected by 2028.
The FOMC minutes underscore a mounting fear that inflation fueled by the Iran conflict may persist, potentially forcing a more aggressive monetary stance. As the Fed moves into a new leadership era under incoming Chair Kevin Warsh, it appears he will inherit a committee of central bankers who are increasingly wary of the inflationary risks posed by global geopolitical instability.
Summary
The latest FOMC meeting minutes reveal significant concerns among Federal Reserve officials regarding the inflationary impact of the conflict involving Iran. Although the federal funds rate remains unchanged at 3.5% to 3.75%, the committee experienced its highest level of internal dissent since 1992. The majority of policymakers signaled that further interest rate hikes could be necessary if inflation remains consistently above the 2% target.
While some officials suggested that future rate cuts remain possible if inflation stabilizes or the labor market weakens, the overall sentiment remains hawkish. Participants warned that persistent geopolitical instability and rising energy costs might necessitate a tighter monetary policy for longer than previously expected. As the Fed prepares for a leadership transition, the committee remains focused on balancing maximum employment with the need to anchor long-term price stability.
