Fed split on whether Mideast war could bring 2026 rate cuts

Minutes from the Federal Open Market Committee’s March 17-18 meeting show officials were divided over whether the war in the Middle East could lead to interest-rate cuts before the end of 2026. The committee voted 11-1 to keep the federal funds target range at 3.5%–3.75%.

The minutes report that many participants were cautious about how conflict in the region might affect inflation and overall economic activity and that it was too early to know the full economic impact.

Several officials judged that “in time, it would likely become appropriate to lower the target range for the federal funds rate” if inflation declined in line with their projections. Other participants cautioned that upward adjustments to the target range could be appropriate if inflation remained above target.

The document also noted support for a two-sided description of future policy, reflecting the possibility of either cuts or additional increases depending on incoming data. The minutes flagged risks to the labor market, noting that “in the current situation of low rates of net job creation, labor market conditions appeared vulnerable to adverse shocks.”

Market pricing at the time of the minutes suggested most traders expected rates to stay near current levels through the end of the year. The CME Group’s FedWatch tool assigned a 75.6% probability that the Fed would keep the federal funds rate at 3.5%–3.75% at the Dec. 8 meeting, a 20.4% probability of a cut and a 2.4% probability of a hike. The minutes also referenced the Dec. 10, 2025 decrease in the policy rate, when officials reduced the target by 25 basis points.

The minutes emphasize that future policy decisions will be data-dependent and hinge on incoming inflation and labor-market readings. Fed Chair Jerome Powell spoke at the March 18 news conference following the meeting. The next FOMC meeting is scheduled for April 28-29, when officials will reassess economic conditions and update their policy outlook.