If there were any doubt about the outsized role the Iran war has played in economic narratives since the regional conflict commenced 40 days ago, consider this: The phrase “Middle East” appears 21 times in the minutes from the latest Federal Open Market Committee (FOMC) meeting.
For comparison, the written recap of the March 17-18 gathering of the Federal Reserve’s rate-setting body features the word “inflation” 63 times and variations of the words “jobs” and “labor” 28 times.
The Fed left interest rates unchanged in March for the second straight meeting, noting in its official policy statement that “uncertainty about the economic outlook remains elevated,” and “the implications of developments in the Middle East for the U.S. economy are uncertain.”
Only temporary Fed Governor Stephen Miran voted against the rate hold. The minutes note that his call for a quarter-point rate cut was driven by “concern that the current stance of policy remained restrictive and was contributing to weak labor demand and elevated downside risks to the labor market.”
The words “uncertain” or “uncertainty” appear 13 times in the March FOMC minutes, often in close proximity to “Middle East.”
A representative sample: “Participants agreed that uncertainty about the economic outlook remained elevated and that the conflict in the Middle East was an additional source of uncertainty.”
Fed Chair Jerome Powell admitted in his post-FOMC press conference last month that he and his fellow central bankers would have preferred to skip making their quarterly economic projections this time around.
“Even more than usual, it’s good to take the forecasts with a grain of salt, because it’s subject to just very high levels of uncertainty,” Powell said.
Still, a notable takeaway from the March minutes is that some FOMC members expressed open-mindedness about a possible interest rate hike in 2026 if inflation trends higher.
“Some participants judged that there was a strong case for a two-sided description of the Committee’s future interest rate decisions in the postmeeting statement,” the minutes read, “reflecting the possibility that upward adjustments to the target range for the federal funds rate could be appropriate if inflation were to remain at above-target levels.”
That said, “most participants raised the concern that a protracted conflict in the Middle East could lead to a further softening in labor market conditions, which could warrant additional rate cuts.”
With less than three weeks to go until the next FOMC meeting, the overwhelming consensus is that the two-sided pressures on the Fed’s dual mandate of maintaining stable consumer prices and maximum employment will zero each other out.
As of Thursday morning, the odds stood at 98.4% that the Fed will again hold rates steady in April, according to CME FedWatch.
