Minutes of the Fed’s March meeting approaching: How do officials view the economic impact of the war?

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The Federal Reserve will release the minutes of its March meeting on Wednesday local time. The market widely expects that they will reveal in detail policymakers’ deep concerns about the global oil shock triggered by the Middle East conflict, and provide key policy clues for assessing the current highly uncertain economic outlook.

According to Xinhua News Agency, Trump has made concessions and agreed to a temporary two-week cease-fire. Brent crude oil has fallen back below $100 per barrel; however, the war has already substantially reshaped the Fed’s framework for economic assessment, with stagflation risks becoming a core concern.

The most direct policy signal is reflected in the reversal of the interest rate path. The previously widespread market expectation of multiple rate cuts within the year has now turned into a possible policy pause lasting several years. Investors currently anticipate that the Fed will not adjust its current 3.5% to 3.75% policy rate range until the end of 2027 at the earliest.

The soon-to-be-released meeting minutes will become the market’s focus. Investors will closely watch how policymakers weigh the upward pressure on inflation targets from soaring energy costs against the potential drag suppressing consumer spending and economic momentum.

Powell: Multiple Scenario Analyses Incorporated, Uncertainty Remains High

During the Fed’s monetary policy meeting on March 17-18, the global oil shock had entered its third week, with benchmark oil prices surging from about $70 to $100 a barrel. The latest economic forecasts released after the meeting show that almost all policymakers have raised their inflation forecasts for 2026.

Fed Chairman Powell stated at the post-meeting press conference that multiple scenario analyses had been included in the meeting discussions. Such analyses are usually part of the staff’s economic outlook report and are expected to be detailed in the meeting minutes.

Powell also stressed the high degree of uncertainty in the situation. He pointed out that, regarding the duration of the war and its impact on U.S. and global economic growth and prices, the Fed “should not assume events will necessarily develop in any particular direction.”

Rising Inflation Concerns: Some Officials Previously Considered Signaling Rate Hikes

Faced with a complex macro environment, the Fed decided at its March meeting to keep its policy rate in the 3.5% to 3.75% range, without giving any clear signal of a near-term adjustment. This decision marks a significant shift in policy stance. The previously widespread expectations for rate cuts within the year have dissipated completely, replaced by long-term policy observation.

As early as January this year, before the war broke out, some Fed officials had already expressed concerns over the trend of inflation. At that time, data indicated that the inflation rate appeared to be stuck about one percentage point above the 2% target, and some officials even said they were prepared to signal that rate hikes could be needed.

Although the Fed did not alter its wording in the March policy statement to suggest the possibility of rate hikes, the upcoming minutes may reveal whether policymakers’ sentiment has further tilted toward tightening. The minutes are expected to show how central bank officials evaluate the dual risks stemming from the oil shock: Is the inflation target facing a greater threat, or is the risk of an economic stall and labor market weakness due to consumers coping with higher energy costs more significant?

Chicago Fed President Goolsbee expressed a pessimistic view of the situation before the cease-fire announcement on Tuesday. He said, he had originally been optimistic that inflation would return to 2%, but recent developments have “upgraded the alert from orange to red.” Goolsbee pointed out that the upward pressure on prices from tariffs had not dissipated as expected, and now new stagflationary shocks are being added, making this an “undeniably unsettling moment.”

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