Most Federal Reserve officials warned that the central bank might need to consider raising interest rates if inflation remains above its 2% target.
According to meeting minutes, at last month’s policy meeting, “many” officials urged the Fed to abandon its dovish stance and suggested that its next move might be a rate hike.
The minutes of the Federal Open Market Committee meeting held on April 28–29 were released Wednesday in Washington, showing that while some policymakers indicated they believed rate cuts would ultimately be necessary, most participants emphasized that “some tightening might be appropriate if inflation remains above 2%.”
Records show that, in response to the possibility of rate hikes, “many participants indicated they would prefer to remove from the post-meeting statement any language suggesting a potential easing bias in the committee’s future interest rate decisions.”
The meeting minutes highlighted growing concerns among Federal Reserve officials about inflationary pressures stemming from a potential war with Iran. This discussion marked a sharp departure from the stance earlier in the year, when the Fed was still suggesting that rate cuts were the most likely action by 2026.
At its April meeting, the Federal Open Market Committee (FOMC) decided to keep the benchmark federal funds rate unchanged in the range of 3.5% to 3.75%. However, this decision drew dissenting votes from three policymakers who opposed language in the post-meeting statement suggesting that the Fed might eventually resume rate cuts.
Meeting minutes indicate that “the majority of participants noted the risk had increased that inflation may take longer than previously expected to return to the committee’s 2% target.”
In the weeks since that meeting, several officials have warned that bond yields are surging and inflation outlooks are deteriorating due to the Strait of Hormuz remaining effectively blockaded.
Stronger-than-expected employment data and higher-than-expected inflation figures have reinforced the view that price pressures remain a greater risk stemming from the conflict, rather than a sharp downturn in economic activity.
Officials continued to describe the labor market as stabilizing, though still fragile.
Despite volatile market conditions, investors priced in on Tuesday an expectation of a 21-basis-point tightening in monetary policy by year-end, according to futures contracts tied to the federal funds rate, suggesting a high likelihood of a 25-basis-point rate hike in 2026.
Outgoing Federal Reserve Chair Jerome Powell said at a press conference following the April meeting that the decision on whether to maintain a dovish tone in the Federal Open Market Committee’s (FOMC) statement was “more difficult” than at the previous meeting in mid-March. He also indicated that adjustments could be made “as early as the next meeting.”
The latest quarterly economic forecast released by the Federal Reserve in mid-March shows that officials still believe one rate cut this year is appropriate. The updated forecasts will be released after the meeting on June 16–17.
The backdrop of the upcoming meeting will pose an early test for Kevin Warsh, who will be sworn in as Federal Reserve chairman by President Donald Trump at a ceremony held at the White House on Friday.
Trump made it clear that whether he would be willing to lower interest rates was his litmus test for choosing a Federal Reserve chair, but Wash denied at the Senate confirmation hearing that the president had asked him to do so, and pledged to protect the independence of the Fed’s interest rate-setting process.
In discussing financial stability, the meeting minutes show that “some participants commented that the committee could consider extending the swap line maturities by more than one year, noting that such an extension would benefit financial stability.”
