Fed minutes show more officials warned of rate-hike scenario

A majority of Federal Reserve officials warned the central bank would likely need to consider raising interest rates if inflation continued to run persistently above their 2% target.

In response to the same worries, “many” officials during last month’s policy meeting called for the Fed to drop its easing bias and signal its next move could be an interest-rate increase, according to a record of the gathering.

While several policymakers said they believed rate cuts would eventually be warranted, most of the meeting’s participants instead stressed that “some policy firming would likely become appropriate if inflation were to continue to run persistently above 2%,” minutes of the April 28-29 Federal Open Market Committee meeting, published Wednesday in Washington, showed.

To address the possibility of rate hikes, “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,” the record showed.

The minutes underscored the deepening concern among Fed officials about inflationary pressures generated by the Iran war. The debate marked a substantial departure from the beginning of the year, when the central bank was still signaling interest-rate cuts as the most likely course of action in 2026.

At the April meeting, the FOMC elected to leave its benchmark federal funds rate unchanged in a range of 3.5% to 3.75%. But the decision prompted dissents from three policymakers who objected to language in the post-meeting statement suggesting the Fed could eventually resume rate cuts.

“The vast majority of participants noted an increased risk that inflation would take longer to return to the committee’s 2% objective than they had previously expected,” according to the minutes.

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In the weeks since the meeting, several officials have warned about the worsening inflation outlook as the Strait of Hormuz has remained effectively blocked and bond yields have soared.

Stronger-than-expected data on employment and faster-than-expected inflation figures have also reinforced the notion that price pressures remain the bigger risk from the conflict than a sharp downturn in economic activity.

Officials continued to characterize the labor market as stabilizing, though fragile.

While markets have been volatile, investors on Tuesday priced in as much as 21 basis points of tightening by the end of the year, according to futures contracts linked to the federal funds rate, implying a strong chance of a 25-basis-point rate hike in 2026.

Incoming chair

Outgoing Fed Chair Jerome Powell, during a press conference following the April meeting, said the decision to retain the easing bias in the FOMC statement was “a much closer question” than it had been at the previous meeting in mid-March. He also said a tweak “conceivably could come as soon as the next meeting.”

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The Fed’s last set of quarterly economic projections, published in mid-March, showed the median official still thought one rate cut this year would be appropriate. Officials will publish new projections at the conclusion of their June 16-17 meeting.

The backdrop for the upcoming gathering will pose an early test for Kevin Warsh, who is set to be sworn in as Fed chair by President Donald Trump on Friday during a ceremony at the White House.

Trump made it clear that a willingness to reduce interest rates was a litmus test in his selection, though Warsh, in his Senate confirmation hearing, denied the president had asked him to do so and pledged to protect the independence of the Fed’s rate-setting process.

In a discussion on financial stability issues, the minutes revealed that “a few participants commented on the possibility that the committee could consider extending the terms of swap lines beyond one year, noting that a longer extension would be beneficial for financial stability.”

The comments come after Treasury Secretary Scott Bessent has talked about a more expansive role for swap lines to reinforce the use of the dollar. He has said that many countries, including some in the Gulf region and Asia, have asked about establishing swap lines with the US.

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