U.S. Federal Reserve Chair Jerome Powell attends a press conference in Washington, D.C., the United States, on April 29, 2026.
Li Rui | Xinhua News Agency | Getty Images
A majority of Federal Reserve officials at their most recent meeting anticipated that interest rate increases would be necessary if the Iran war continued to aggravate inflation, according to minutes released Wednesday.
Though the rate-setting Federal Open Market Committee again voted to keep its benchmark rate targeted between 3.5%-3.75%, the meeting featured four “no” votes, the most since 1992, and an apparently heightened level of disagreement about where policy should go.
At issue was the impact that the Iran war would have on prices and how that would work its way into monetary policy. Officials differed on how long the war’s impact would last and whether the post-meeting statement should continue to reflect a bias toward cutting rates as the more likely next move.
While several meeting participants said it would be appropriate to lower when it’s clear that inflation is moving back to the Fed’s 2% target or when the labor market weakens, “A majority of participants highlighted, however, that some policy firming would likely become appropriate if inflation were to continue to run persistently above 2 percent.”
Three of the four “no” votes came from regional presidents who advocated policymakers keep their options open for increases amid an inflation surge. The group agreed with keeping the benchmark fed fund rates steady, but objected to the inclusion of language that referenced “additional adjustments” to rates. The phrasing is widely believed to infer the next move would be a cut.
The minutes noted that “many participants indicated that they would have preferred removing the language from the post-meeting statement that suggested an easing bias regarding the likely direction of the Committee’s future interest rate decisions.”
In Fed parlance, though, “many” does not constitute a majority, so the phrasing remained in the statement.
Officials broadly agreed that the Iran conflict would have “significant implications” for the Fed as it pursued its dual goals of full employment and stable prices, though they debated how long the impact on inflation would last.
“The vast majority of participants noted an increased risk that inflation would take longer to return to the Committee’s 2 percent objective than they had previously expected,” the document stated.
Warsh’s challenge
The meeting took place against an intriguing backdrop: It was the last time Jerome Powell presided over the committee, and it came amid escalating inflation pressures coming primarily from the war as well as other factors that have officials cautious over the future of policy.
Former Governor Kevin Warsh now takes over the helm, following a lengthy campaign that involved as many as 11 candidates. President Donald Trump chose Warsh and was explicit that he expects the Fed to be cutting rates.
Market pricing, though, has pointed to a higher probability that the committee’s next move will be a hike, either by late 2026 or early 2027.
Inflation had been trending toward the Fed’s 2% goal through 2025 and into the early part of this year. However, the war has changed the dynamic, with soaring energy prices sending most inflation measures above 3%.
Policymakers generally look through supply shocks like the oil surge as temporary. However, even core inflation, which excludes food and energy, has been climbing as well. Goldman Sachs expects that the Fed’s chief inflation forecasting measure will post an annual rate of 3.3% in April when that figure is released next week.
Warsh’s challenge, then, will be to convince his colleagues that improvements in productivity, led by artificial intelligence enhancements, will be disinflationary and counter the momentary impact of higher energy costs.
One of those colleagues will be Powell himself, who has chosen to stay on the Board of Governors. Powell has two years remaining on that term and said in April that he would stay on “for a period of time to be determined” while echoing a prior statement that he would stay until “this investigation is well and truly over.” No other Fed chair has stayed on the board in nearly 80 years.