Fed considers further rate hikes amid persistent inflationary risks

US Federal Reserve officials suggested at their latest meeting that they may have to increase interest rates if the conflict with Iran continues to fuel inflation, according to minutes released on Wednesday. Although the Fed ultimately held its benchmark rate within a 3.5% to 3.75% range, the discussions revealed growing divisions within the monetary committee. The meeting was marked by four dissenting votes, a level of disagreement that has not been seen since 1992.

Debates primarily focused on the impact of the Iranian conflict on energy prices and the potential duration of inflationary pressures. Several officials said that rate cuts could be considered if inflation clearly trended back towards the 2% target - or in the event of a deteriorating labor market. However, a majority of participants felt that further monetary policy tightening would likely become necessary should inflation remain persistently above that target. Several members also sought to remove any language from the final statement suggesting that a rate cut was still the preferred path.

This meeting was the last chaired by Jerome Powell before Kevin Warsh takes the helm. Donald Trump has publicly expressed his desire for the central bank to swiftly reduce rates, but markets are now increasingly pricing in the risk of a hike by late 2026 or early 2027. After slowing in 2025, US inflation has rebounded due to surging energy prices related to the conflict with Iran. Even core inflation is now accelerating, heightening concerns amongst monetary policymakers.