Fed minutes highlight risk of rate hikes, cuts amid oil shock, labor market concerns

• Minutes show concern that prolonged conflict could weaken labor market further, warrant additional easing

US Federal Reserve officials said at their March meeting that the Iran war could create competing risks for American monetary policy, with persistent oil-price increases potentially requiring rate hikes, while a weaker labor market could warrant additional rate cuts, according to minutes released Wednesday.

The minutes showed policymakers agreed it was too early to determine how developments in the Middle East would affect the US economy and said they would remain “nimble” in assessing the policy path.

Many said there was a risk inflation could remain elevated for longer than expected if oil prices stayed high, a scenario that could require tighter monetary policy.

At the same time, most expressed concern that a prolonged conflict could soften labor market conditions, which could justify additional rate cuts.

Officials said substantially higher oil prices could reduce the purchasing power of households, tighten financial conditions and weigh on growth abroad, increasing downside risks to employment.

The Federal Open Market Committee voted 11-1 at its March 17 - 18 meeting to keep the benchmark federal funds rate unchanged at 3.5%-3.75%.

The minutes also showed that many policymakers still expected it would become appropriate over time to lower rates if inflation continued to move toward the Fed’s 2% target.

The meeting took place weeks after the US and Israel launched attacks on Iran, triggering a jump in energy prices and renewed concerns about inflation.

Although a cease-fire announced Tuesday helped push oil prices lower, the minutes reflected the heightened uncertainty that prevailed when officials met in March.

Markets still largely expect the Fed to remain on hold for the rest of the year, though traders modestly increased bets on a possible rate cut after the cease-fire announcement.