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Federal Reserve: Rate Cut Plans for 2026 Remain in Place Despite War with Iran
The Federal Reserve has published the minutes of its March meeting, showing that even amid military risks in the Middle East, many FOMC participants still consider a rate cut in 2026 likely if the conflict impacts economic growth and the labor market more than inflation.
What the Fed Minutes Reveal
According to materials from the March 17–18 meeting, the committee kept the federal funds rate target range at 3.5–3.75%. However, internal discussions have become noticeably more hawkish: some policymakers suggested that a prolonged military conflict, rising energy costs, and the risk of entrenched inflation expectations could require not rate cuts but even hikes. Nevertheless, the minutes explicitly note that many officials still view policy easing later in 2026 as the baseline scenario if the conflict leads to weaker consumer spending, deteriorating labor market conditions, and a more pronounced slowdown in business activity.
Why War Strengthens Both Hawkish and Dovish Arguments
The Fed’s current logic is built around two opposing effects. The first is inflationary. If oil prices and related costs remain high, companies will pass expenses on to consumers, delaying progress toward the 2% inflation target. This is why some participants were open to a more hawkish rate path. The second effect is macroeconomic. More expensive energy, tighter financial conditions, and weaker demand could slow the economy enough to force the Fed to resume rate cuts to support employment and credit activity. This is the key takeaway from the minutes: the regulator does not see a one-sided scenario and is keeping a wide range of options open.
How This Aligns with the March FOMC Decision
At the March meeting, the committee left rates unchanged and signaled that future actions would depend on incoming data, updated forecasts, and the balance of risks. At the same time, the economic projections released then showed that the median FOMC member still expected one 25-basis-point rate cut in 2026. The minutes refine this picture: sensitivity to inflation risks has increased within the committee, but the consensus around potential easing has not disappeared.
What CME FedWatch Showed
Market expectations shifted notably on the day the minutes were released. The CME FedWatch tool indicated that the probability of at least one rate cut by December 2026 rose to 44.1% from 14.1% the previous day. Meanwhile, the probability of maintaining the 3.5–3.75% range through year-end fell to 53.6% from 77.4%, and the likelihood of a rate hike dropped to 0.8% from 4.9%. Breaking this repricing down, the probability of a 25-basis-point cut increased to 35.2% from 16.7%, while the likelihood of a 50-basis-point or greater cut rose to 10.4% from 1.1%. For markets, this is an important detail: investors are not just expecting a “more dovish” Fed in general terms, but are rapidly pricing in a concrete return to easing if the geopolitical shock does not become embedded in inflation.
AI Perspective
For global markets, the Fed minutes are important because they do not rule out any scenario. If the rise in energy prices proves temporary and the economy begins to cool, the Fed will still have grounds to cut rates as early as this year. If inflation accelerates again and household expectations shift upward, the Fed may keep rates higher for longer or even adopt a more hawkish stance. For the crypto market, this means continued sensitivity to macro data: Bitcoin and other risk assets will keep reacting not only to the fact that rates are unchanged, but also to how the Fed ultimately balances inflation against economic slowdown. For now, the minutes suggest flexibility rather than a predetermined path, while CME FedWatch indicates that markets are once again considering a return to rate cuts in 2026.
