Several senior Federal Reserve officials have called for the central bank to remove language suggesting the next policy move would be a rate cut from its April statement, highlighting growing market concerns over the Iran conflict. The minutes from the late April meeting, released on Wednesday, stated: "Many participants indicated that they would have preferred to remove from the post-meeting statement language indicating that the Committee's future policy decisions are likely to involve a reduction in the target range for the federal funds rate." The minutes also noted that a majority of participants judged that if inflation were to persist above the Committee's 2 percent objective, additional policy firming could become appropriate. The increasing push from policymakers to delete this so-called "easing bias" reflects heightened market anxiety over the Trump administration's Iran war. This situation also means that Kevin Warsh, set to replace Jay Powell as Chair this Friday, will inherit a deeply divided Federal Reserve. The Iran conflict has triggered sharp increases in gasoline and diesel prices, pushing the Fed's preferred inflation gauge, the core PCE index, to 3.5%, its highest level since 2023. Wednesday's minutes revealed that the number of senior officials supporting the removal of the easing bias was greater than market participants had previously anticipated. While Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan all agreed with the FOMC's decision to hold the policy rate steady in the 3.5%–3.75% range, they voted against retaining language indicating the next move would likely be a cut. The use of the term "many" in the minutes suggests that several regional Fed presidents who participated in the meeting but do not have a vote on the FOMC this year also supported removing the easing bias. Omar Sharif, an analyst at Inflation Insights, stated: "Most officials saw that if inflation persists above 2%, some additional policy firming may be appropriate; many officials wanted to remove the easing bias from the statement—this signals a clear hawkish tilt on the Committee, leaning towards a rate hike within the year." Thomas Ryan, an analyst at Capital Economics, added: "The minutes from the Fed's late-April meeting were more hawkish than the initial post-meeting communications suggested—the statement was largely unchanged despite several dissents." Before the outbreak of the Iran war, investors had expected the Fed to deliver two 25-basis-point rate cuts this year. However, markets have begun pricing in a hawkish pivot from the Fed. Data from CME Group shows federal funds futures trading implies a roughly 50% probability of a hike by the end of 2026. Fed Governor Stephen Milan, a Trump appointee, also dissented from the rate decision, stating he would have preferred a rate cut. The number of dissenting votes at this meeting was the highest since 1992.
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