Fed Officials Flag Rate Hike Possibility if Inflationary Pressures Persist, FOMC Minutes Show

03:43 PM EDT, 05/20/2026 (MT Newswires) -- Federal Reserve officials flagged the possibility of higher interest rates if the Middle East conflict drags on and keeps inflation above the 2% goal, minutes from the central bank's April meeting showed Wednesday.

At that meeting, the Federal Open Market Committee decided to keep its policy rate unchanged between 3.50% and 3.75% for a third straight time amid uncertainty around the US economic outlook.

A fragile ceasefire between the US and Iran appears to be holding, though the two sides are yet to finalize a framework to end the conflict despite a series of talks.

Meeting participants generally determined that elevated inflation, combined with uncertainty around the duration and impact of the Iran war, could justify holding rates for longer than previously anticipated, the meeting minutes showed.

However, majority of Fed officials pointed out "that some policy firming would likely become appropriate if inflation were to continue to run persistently above 2%."

"Many participants indicated that they would have preferred removing the language from the post-meeting statement that suggested an easing bias regarding the likely direction of the committee's future interest rate decisions," according to the document.

Three regional presidents supported the April policy decision, but opposed including an easing bias in the statement. Fed Governor Stephen Miran, whose resignation will take effect the moment Kevin Warsh is sworn in as Fed chair, favored an interest rate reduction.

Several participants were of the view that the Fed's next move could be a rate cut, assuming inflation begins to cool or the labor market weakens significantly, the meeting minutes showed.

"Participants assessed that both upside risks to inflation and downside risks to employment remained elevated," according to the minutes. "Participants generally observed that the conflict in the Middle East could have significant implications for the balance of these risks and for the appropriate path of monetary policy."

Official data showed earlier this month that US annual consumer inflation accelerated in April to the fastest pace in almost three years, while the economy added more jobs than projected. Energy prices have surged amid the near-complete closure of the Strait of Hormuz.

"The discussion at the April meeting suggests the FOMC is becoming increasingly worried about the inflation outlook," Sal Guatieri, senior economist at BMO Capital Markets, said in a report. "While it is in no rush to raise rates, that possibility will only grow if inflation remains stubbornly high ... regardless of the previous views of the incoming chair."

Markets widely expect the FOMC to keep interest rates unchanged at its next policy meeting in June, according to the CME FedWatch tool.

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