WASHINGTON: A growing group of Federal Reserve policymakers felt last month that interest rate hikes might be needed to counter inflation that continued to exceed the central bank's 2 per cent target, particularly given the inflationary impact of the US-Israeli war with Iran, according to the minutes of their March 17-18 meeting.

"Some participants judged that there was a strong case for a two-sided description of the (Federal Open Market) Committee's future interest rate decisions in the post-meeting statement, reflecting the possibility that upwards adjustments to the target range for the federal funds rate could be appropriate if inflation were to remain at above-target levels," the minutes said, referring to support for language in the Fed's policy statement that would suggest the Fed might either cut or raise rates in the future.

The Fed has been cutting rates since 2024, and its statement was designed to lean towards more reductions in the future, language that was ultimately maintained at the March meeting.

Still, the March minutes reflect a larger group open to potential hikes than at the January meeting, when only "several" officials were willing to open the door to tighter monetary policy.

Following the Feb 28 outbreak of war, "many participants pointed to the risk of inflation remaining elevated for longer than expected amid a persistent increase in oil prices", while others cited concerns about rising inflation expectations and risks that higher headline inflation would raise underlying inflation trends as well.

Should the higher energy prices persist, "higher input costs would be more likely to pass through to core inflation," the minutes said. "Some participants highlighted the possibility that after several years of above-target inflation, longer-term inflation expectations could become more sensitive to energy price increases ... Participants noted that progress toward the Committee's 2 per cent objective could be slower than previously expected and judged that the risk of inflation running persistently above the Committee's objective had increased."

Stocks were unfazed by the minutes' hawkish tone, with major indexes higher on hopes of a lasting settlement of the Iran war. 

Interest rate futures traders slightly pared earlier bets on the Fed easing later this year, though bets on any Fed rate hike remained negligible. 

The Fed in March held its benchmark overnight interest rate steady in the ...