A majority of officials at the Federal Reserve thought higher interest rates might become necessary to combat resurgent inflation, according to minutes from the central bank’s April meeting.
The record of the most recent gathering, released on Wednesday, underscored the extent to which the war with Iran has upended the economic outlook and the policy options in front of a central bank that is on the cusp of a leadership transition. April’s gathering was Jerome H. Powell’s last as chair. On Friday, his replacement, Kevin M. Warsh, is set to be sworn in at the White House.
At the start of 2026, most Fed officials saw a path to lower rates this year based on their expectation that inflation would decelerate as the impact of President Trump’s tariffs faded.
But the energy shock stemming from the war has pushed inflation further away from the Fed’s 2 percent target, stoking concerns about a more persistent problem just as the labor market has stabilized. This backdrop has dimmed the prospects of any immediate relief in borrowing costs, with traders in federal funds futures markets now penciling in a rate increase in early 2027.
According to the minutes, a majority of the participants highlighted that “some policy firming would likely become appropriate if inflation were to continue to run persistently above 2 percent.”
April’s meeting was one of the most divisive in decades. Most policymakers agreed with the Fed’s decision to hold rates steady at a range of 3.5 percent to 3.75 percent. But three members of the policy-setting Federal Open Market Committee voted against what they described as an “easing bias” in the central bank’s policy statement. They wanted the Fed to make clear that the next move could just as likely be a rate increase as a rate reduction.
The minutes showed mounting support for that shift across the broader group of 19 policymakers, noting that “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.”
For now, however, most officials appeared comfortable holding rates steady “for longer than previously anticipated” given the recent string of elevated inflation reports and uncertainty about when the war might end. They also appeared to turn more upbeat about the growth outlook in light of recent evidence that the unemployment rate had stabilized, business investment had remained robust and consumer spending had stayed resilient.
A vast majority of officials, according to the minutes, appeared attuned to the possibility that it would take longer for inflation to fall back to the 2 percent target, with several people warning about that overshoot eventually impacting not only how employers set prices but also the wages that employees demand. That kind of spillover could result in a much more persistent inflation problem that would be harder to root out.
Mr. Powell will remain one of the Fed’s 19 officials weighing in on the policy outlook even after he steps down as chair, having decided to stay on as a governor because of his concerns about Mr. Trump’s attempts to encroach on the Fed’s independence.
That leaves Mr. Warsh to allay concerns about rising inflation risks because of the war, while forging consensus among his new colleagues about the path forward for policy. U.S. government bond yields have shot higher in the past week, indicating a drop in price. The yield on 30-year Treasuries at one point this week traded at its highest level since 2007.
This backdrop is likely to deny Mr. Trump the lower borrowing costs he wants and has said he expected Mr. Warsh to deliver.
Mr. Trump appeared to ease up on his demands ahead of Mr. Warsh’s swearing-in ceremony, saying this week that he would “let him do what he wants to do.”
“He’s a very talented guy — he’s going to be fine, he’s going to do a good job,” Mr. Trump said of Mr. Warsh.
