Federal Reserve officials at their March meeting still expected to lower interest rates this year, even with a high level of uncertainty from the Iran war and tariffs, according to minutes released Wednesday.

Most of the participants said the war could result in the need for easier monetary policy if rising gas prices hit the labor market and consumer wallets.

Policymakers said they would need to remain “nimble” as they weighed the impact the war had on inflation, which continued to hold above the Fed’s target, and hiring, which has been mostly flat over the past year.

“Many participants judged that, in time, it would likely become appropriate to lower the target range for the federal funds rate if inflation were to decline in line with their expectations,” the minutes said.

The consensus anticipated one cut this year, unchanged from the last update in December.

The summary then noted caution over “a further softening in labor market conditions, which could warrant additional rate cuts, as substantially higher oil prices could reduce households’ purchasing power, tighten financial conditions, and reduce growth abroad.”

Ultimately, the rate-setting Federal Open Market Committee voted 11-1 to keep the benchmark overnight borrowing rate targeted in a range between 3.5%-3.75%.

The consensus was to keep rates steady as they observed conditions unfold, with officials also expressing concern that the Middle East hostilities could result in sustained inflation that could require rate hikes.

“Most participants commented that it was too early to know how developments in the Middle East would affect the U.S. economy and judged it prudent to continue to monitor the situation and assess the implications for the appropriate stance of monetary policy,” the minutes said.

The March 17-18 meeting came just a weeks after the U.S. and Israel launched an attack on Iran that triggered a surge in energy costs and renewed fears of a spike in inflation. A ceasefire announced Tuesday evening led to a sharp drop in oil, though the durability of the agreement is still highly in question.

In assessing conditions so far, meeting participants said they still expected inflation to continue moving toward the Fed’s 2% target, despite the tumult the war caused. They noted that tariffs remain a threat, though most see the impact of the duties as temporary when it comes to computing inflation.

Chair Jerome Powell said in a recent public appearance that raising rates now to stave off an inflation spike could have negative longer-term effects given the lagged impact of Fed rate moves.

At the same time, officials expressed concern about the labor market, which has been creating enough jobs to keep the unemployment rate steady. However, job growth has come almost exclusively from health care-related sectors, raising concerns about stability and potential for growth.

“The vast majority of participants judged that risks to the employment side of the mandate were skewed to the downside,” the minutes said. “In particular, many participants cautioned that, in the current situation of low rates of net job creation, labor market conditions appeared vulnerable to adverse shocks.”

Markets largely expect the Fed to remain on hold through the rest of the year. However, the ceasefire led traders to raise the odds for a potential cut.
 
Broadly speaking, the economy has showed signs of slowing, causing some on Wall Street to raise their expectations for a recession.
 
Gross domestic product rose at just a 0.7% pace in the fourth quarter of 2025 and is on track for just a 1.3% growth rate in the first quarter of 2026.