The minutes of the American Federal Reserve meeting for the month of March showed that officials still expect to cut interest rates during 2026, despite the high level of uncertainty due to the war in Iran and customs duties.

Most participants indicated that the war may push toward adopting a more accommodative monetary policy if high gas prices lead to pressure on the labor market and consumer portfolios. They also stressed the necessity of being "flexible" when assessing the impact of the war on inflation, which remained higher than the Federal Reserve's target, and on employment, which remained stable over the past year.

The meeting minutes stated: "Many participants see that it would be appropriate in due course to lower the target range for the federal funds rate if inflation falls in line with their expectations."

The general consensus expected one cut this year, unchanged from the last update in last December. The minutes pointed to caution regarding "an additional decline in labor market conditions, which may necessitate cutting interest rates further, given that the rise in oil prices may reduce the purchasing power of households, tighten financial conditions, and slow growth abroad."

Decision to keep interest rates steady

The Federal Open Market Committee voted 11-1 to maintain the target range for the overnight borrowing rate between 3.5% and 3.75%.

Despite that, officials expressed concern that the developments in the Middle East may lead to sustained inflation necessitating a rate hike later. The minutes indicated that "the majority of participants indicated that it is too early to know how the developments in the Middle East will affect the American economy, and they considered it prudent to continue monitoring and assessing the effects on the appropriate monetary policy."

The participants met weeks after the American and Israeli attack on Iran, which caused a wave of rising energy prices and renewed fears of rising inflation. The announcement of the ceasefire led to a sharp decline in oil, but the extent of the agreement's durability is still subject to doubt.

Inflation and the labor market

Despite the disruptions, participants expected that inflation would continue to move toward the Federal Reserve's target of 2%. They confirmed that customs duties still represent a threat, but most of them consider their impact temporary when calculating inflation.

Chair Jerome Powell expressed that raising rates now to repel the rise in inflation may have negative effects in the long term due to the delay in the impact of interest rate decisions. At the same time, officials expressed concern regarding the labor market, which still creates enough jobs to maintain the stability of the unemployment rate, but most of the growth in jobs was in the healthcare sector, which raises concern about the market's stability and the capacity for growth.

"The vast majority of participants see that the risks on the employment side are tilted toward the downside. Specifically, many participants warned that the labor market appears vulnerable to negative shocks in light of low rates of net job creation."

Market expectations and economic growth

Markets generally expect that the Federal Reserve will remain on its stance until the end of the year, but the ceasefire increased the probabilities of a potential cut.

On the economic front, indicators showed signs of slowing, as the Gross Domestic Product rose by 0.7% in the fourth quarter of 2025, and it is expected to record only 1.3% in the first quarter of 2026.