Meeting minutes: Federal Reserve officials believe the Iran war poses risks to both employment and inflation

Many participants believe that, with oil prices continuing to rise, inflation may remain elevated for longer than expected, which could require interest rate hikes. Certain officials think there is a "high possibility" that "two-way" language will appear regarding the interest rate path. An increasing number of policymakers believe there is "sufficient reason" to adopt a "two-way" description for future interest rate decisions. The majority of officials said that war could impact employment, ensuring rate cuts. Most participants believe that, as the situation in the Middle East develops, risks have increased. Most participants are concerned that prolonged conflict could further weaken the labor market, which may require additional rate cuts. Most participants stated that it is too early to know how the Middle East situation will impact the US economy. Several participants postponed their assessment of the timing of rate cuts even further. Many participants determined that, if inflation falls as expected, lowering interest rates may become appropriate. Almost all participants supported not cutting rates at the March meeting (with Governor Mielan as an exception). These participants generally believe that the current policy rate is within a reasonable range of the neutral rate. The vast majority of participants think the upside risks to inflation and downside risks to employment are both elevated. The vast majority of participants pointed out that progress toward the 2% inflation target may be slower than expected and believe the risk of sustained inflation above the target is higher. The Federal Reserve staff's economic outlook expects that economic activity will not be as strong as projected at the January meeting. In their model, the Federal Reserve staff only included "modest impacts" on economic activity from conflict-induced stock price declines and rising crude oil prices.