"‘New Federal Reserve News Agency’: Regardless of whether a ceasefire agreement is reached, the outlook for a Fed rate cut remains bleak."

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On Wednesday, renowned financial journalist Nick Timiraos, known as the “new Fed news agency,” wrote that the ceasefire between the U.S. and Iran offers a chance to alleviate the latest serious threat facing the global economy. However, for the Federal Reserve, this may merely exchange one problem for another: an energy shock lasting just long enough to push inflation higher but not seriously undermine demand, resulting in interest rates remaining unchanged for an extended period.

Timiraos cited the Federal Reserve’s March 17-18 meeting minutes released on Wednesday:

The minutes highlighted that the Iran war did not make the Fed reluctant to cut interest rates, but rather complicated its already cautious stance. Before the Iran conflict erupted, the path for rate cuts had already narrowed. The U.S. labor market had stabilized enough to alleviate recession concerns, while progress toward returning inflation to the Fed’s 2% target had stalled.

The March meeting minutes stated that, partly due to the risks of prolonged war, the vast majority of participants noted that progress towards the inflation target might be slower than previously expected, and judged that the risk of inflation remaining persistently above the committee’s target had increased.

At the March FOMC meeting, the Federal Reserve kept its benchmark interest rate unchanged in the 3.5% to 3.75% range, marking the second pause after three consecutive cuts in the last few months of 2025.

Timiraos noted that if the risk of the Iran conflict expanding and dragging down economic growth, thereby pushing the economy into recession, is the last and strongest reason for resuming rate cuts, then paradoxically, the end of the war might make it even harder for the Fed to loosen policy in the short term:

This is because the ceasefire eliminated the worst-case scenario—namely, severe price surges disrupting supply chains and destroying demand—but the degree to which it reduces inflation risk might not be as large as the reduction in extreme scenarios. Energy and commodity prices that rose during the conflict may not fully return, and with the optimism brought by the ceasefire, such as Wednesday's market rally, financial conditions are loosening.

Once the risk of serious demand destruction is ruled out, what remains is an inflation issue that has not been fully resolved. The recent rise in energy prices may create a certain “echo effect”; even if the ceasefire holds, the impact will linger, though more moderately than before.

Timiraos cited Marc Sumerlin, managing partner at economic consulting firm Evenflow Macro: “As recession probabilities decline, inflation probabilities actually rise, because price pressures remain, but demand destruction is not as severe.”

Timiraos pointed out that meanwhile, the ceasefire has also reduced another less likely but more destructive risk—the sustained surge in energy prices, which could force the Fed to consider rate hikes.

Timiraos noted that the Federal Reserve’s March meeting minutes show that officials were weighing the dual risks brought by the war: on the one hand, the possibility that the jobs market could suddenly deteriorate, necessitating rate cuts; on the other, inflation remaining persistently high, necessitating rate hikes.

In post-meeting forecasts, most officials still expected at least one rate cut this year. But the minutes stressed that this expectation hinges on inflation returning toward the target. The minutes stated that two officials had already postponed their judgment on the timing of rate cuts due to the recent lack of improvement in inflation.

The Fed’s post-meeting statement still suggested that the next rate move is more likely to be downward rather than upward. However, the minutes showed that compared to the January meeting, more officials believed this “bias” could be eliminated. The minutes noted that if the wording of the statement is adjusted, it would mean that if inflation remains persistently above target, rate hikes could also be an appropriate choice.

Timiraos stated that the Fed’s current stance reflects an “overlapping problem,” citing Fed Chairman Powell’s recent speech:

Powell said last week that after the pandemic, the Russia-Ukraine conflict, and last year’s increase in tariffs on imported goods, the Fed is now facing the fourth supply shock in recent years.

The Fed’s policies have enough leeway to wait and assess the economic impact, but Powell also warned that a series of one-off shocks could undermine public confidence in inflation returning to normal. And the Fed is highly attentive to this risk, as it believes inflation expectations could become “self-fulfilling.”

Timiraos noted that even before this week’s ceasefire announcement, current and former Fed officials had indicated that, even if the conflict is resolved quickly, policy would not immediately return to normal. Part of the reason is the world has witnessed how easily the Strait of Hormuz can be blocked, and this vulnerability may be priced into energy prices and corporate decisions for years to come. Some geopolitical analysts question whether the ceasefire will allow energy prices to fully revert to pre-war levels. Iran has strong motivation to maintain high oil prices in order to obtain reconstruction funds and maintain influence over Gulf neighbors.

Timiraos cited remarks by St. Louis Fed President Musalem last week, stating that even if the conflict ends in the coming weeks, he will monitor “ripple effects” that may push prices higher even after supply chains recover. “I’m always looking for those echoes; even if the war ends soon, restoring damaged capacity will take time.”

Timiraos added that the Fed’s cautious attitude echoes a framework proposed more than twenty years ago by then-Governor Bernanke: central banks should decide how to respond to oil price shocks based on inflation levels at the time of the shock:

If inflation is already low and expectations are stable, policymakers can “ignore” inflation pressures from rising energy prices; but if inflation is above target, then supply shocks further disrupting inflation expectations require tighter policies. Some officials see this as more similar to the Fed’s current situation.

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