FOMC minutes show a Fed worried about the impacts of Iran and viewing a rate hike as likely as a cut as risks become increasingly two-sided

• Fed sees balanced upside and downside risks for the first time, driven by Middle East tensions causing both higher energy prices (inflation risk) and potential demand destruction (recession risk)
• Staff forecast shows real GDP growth expected to run in line with potential through 2028, with inflation projected to return close to 2% by end of next year despite elevated near-term energy price concerns
• Stephen Miran was the sole dissenter, voting for a 25 basis point rate cut, while the majority held rates steady amid heightened uncertainty from geopolitical developments

Summary: FOMC Minutes Reveal Heightened Uncertainty Over Iran Conflict and Equal Rate Hike/Cut Probability

Key Findings

The March 17-18 FOMC meeting minutes revealed significant uncertainty regarding the Iran war's impact on the U.S. economy, with Federal Reserve members now viewing rate hikes as equally likely as cuts. The committee voted to hold rates, with only one dissent from Stephen Miran, who favored a quarter-point cut.

Market Developments

The Fed noted several critical market shifts:

• Two-year Treasury yields increased, driven by higher inflation compensation linked to surging energy prices from Middle East developments
• 10-year Treasury yields remained relatively unchanged
• Equity indexes declined with notably increased volatility
• The dollar strengthened moderately due to deteriorating risk sentiment and U.S. net energy exporter status
• Market expectations for rate easing shifted toward year-end

Economic Outlook

The staff's economic projections weakened compared to January:

• Real GDP growth expected to align with potential growth through 2028
• Unemployment projected to remain near current levels through most of next year
• 2026 inflation forecast slightly higher due to elevated crude oil prices
• Inflation expected to approach 2% target by end of next year

Risk Assessment

FOMC members identified elevated uncertainty from:

• Middle East geopolitical developments
• Government policy changes
• AI adoption impacts

Most participants acknowledged that prolonged Middle East conflict could either warrant rate cuts (if labor markets soften) or rate increases (if inflation remains elevated), reflecting increasingly two-sided risks to monetary policy.

Gold prices declined following the release, trading at $4,724.13, up 0.38%.