Rising gas prices push Fed to weigh potential rate hike this year

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Federal Reserve minutes released Wednesday, April 8, show an uptick between the central bank’s January and March meetings in the number of policymakers willing to consider a potential interest-rate hike this year. The change comes as higher gas prices tied to the Iran war threaten to keep inflation elevated into the coming months, complicating the Fed’s effort to meet its dual mandate of low inflation and maximum employment.

The minutes of the Fed’s March 17-18 meeting describe how officials discussed whether future policy communications should leave room for a rate increase. They said that “some” of the Fed’s 19 policymakers on its rate-setting committee supported changing their post-meeting statement to reflect the potential for a future rate hike, an increase from “several” who supported a similar approach in January. The Fed does not publish precise counts by category, but it distinguishes among levels of support in its minutes and internal language.

The same document also describes broader concern among officials about inflation persistence. The minutes said “many” officials pointed to the risk that higher oil and gas prices could keep inflation elevated “for longer than expected,” adding that this could “call for rate increases” to push inflation back down.

Over the past roughly 18 months, the Fed’s policy posture has leaned toward cutting rates, with meetings alternating between rate cuts and no change. The shift toward considering possible hikes this year, as reflected in the minutes, marks a departure from that longer pattern, even as the Fed did not move rates at its March meeting.

At that March meeting, the Fed kept its key interest rate unchanged at about 3.6%, and it has held steady in its first two meetings of the year after cutting its rate three times at the end of 2025. Powell, speaking at a news conference after the meeting, downplayed the idea—raised by some officials in their projections—that the Fed could reduce its rate later this year.

Powell’s comments tied any future rate cut to whether inflation progress continues. In remarks after the March meeting, he said: “If we don’t see that progress then you won’t see the rate cut.” The minutes and the meeting context underscore that the central bank is watching both inflation dynamics and economic activity as it weighs the timing of any easing.

The Fed’s officials also discussed a “two-sided” risk created by higher energy prices: the same shock that can worsen inflation could also lead households to cut back spending, slowing growth and raising unemployment. The minutes describe how the central bank must navigate that tradeoff when deciding whether to tighten further to cool prices or to hold or cut rates to support hiring.

On Friday, the first clear indication of the gas-price impact on inflation is expected to come from a scheduled government report on March inflation. Economists forecast it will show a 0.9% increase in March from February and prices up 3.4% compared to a year earlier, following February’s 2.4% year-over-year inflation reading. The Fed targets 2% inflation, and officials are likely to view a steady increase as a sign that inflation control may be harder than previously hoped.

Earlier this week, Beth Hammack, president of the Federal Reserve Bank of Cleveland, said estimates from her bank show inflation will likely rise even higher in March. In an interview, she said, “Inflation has been running above our target for more than five years now,” and added that a further increase would mean inflation is “moving in the wrong direction.”