Fed Rate Cuts 2026 Still Expected Amid Iran Conflict
FOMC minutes show officials still expect a 2026 rate cut despite Iran energy risks; Fed rate cuts 2026 outlook now diverges from market pricing.
KEY TAKEAWAYS
- FOMC minutes show many officials still expect one rate cut in 2026.
- Minutes flagged two-sided risks as oil and gas pressures risk keeping inflation elevated.
- CME FedWatch showed a 23.7% chance of a December 2026 cut, signaling market divergence.
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Federal Reserve minutes show officials held rates steady at the March meeting and maintained a baseline expectation of a cut in 2026. That outlook faces complications from higher oil and gas prices linked to the Iran conflict.
FOMC Holds Rates Amid Two-Sided Risks
At the March 17–18, 2026 meeting, the Federal Open Market Committee (FOMC) kept the federal funds rate in the 3.50%–3.75% range. The minutes released April 8 show many participants still expect one rate cut in 2026 but highlighted two-sided risks. Some officials favored signaling the possibility of future hikes, while many flagged rising energy costs as a factor that could keep inflation elevated.
Most participants judged that a prolonged Middle East conflict could reduce household spending, tighten financial conditions, and slow growth. These effects could justify additional rate cuts if they materialize.
Iran Conflict Raises Inflation and Market Uncertainty
Late March attacks on Persian Gulf gas fields by Israel and Iran escalated the conflict and heightened energy-security concerns. Gasoline prices averaged $4.09 a gallon the Friday before the minutes release, more than $1 above pre-war levels.
Inflation has exceeded the Fed’s 2% target since 2021. March consumer-price inflation was expected at an annual pace of 3.1%, up from 2.4% in February. Chicago Fed President Austan Goolsbee warned that war-related risks are likely to fuel inflation and complicate efforts to ease policy in 2026.
Market pricing has shifted later. The CME FedWatch tool showed a 23.7% probability of a December 2026 rate cut, the highest among remaining meetings that year. Other readings assign no chance of cuts in 2026 and place a 54% probability on a July 2027 cut to a 3.25%–3.50% range. This divergence leaves investors and policymakers weighing competing scenarios on the timing of easing as energy prices and inflation evolve. The April 10 consumer-price index report may influence that outlook.
