The March FOMC minutes, as analyzed by UOB’s Alvin Liew, indicate a divided Federal Reserve, with most officials expressing greater concern about US labor markets than inflation, suggesting a tilt toward future rate cuts [1]. The minutes reveal that Fed officials are mixed regarding the direction of interest rates, emphasizing the need to remain 'nimble' amid uncertainties, particularly those stemming from the ongoing conflict in the Middle East [1]. Many officials believe further rate cuts would be appropriate if inflation continues to decline as expected, while some have delayed the timing of cuts due to recent inflation readings. There is also a strong case among some officials for maintaining a two-sided policy statement, keeping the possibility of rate hikes open [1].
The 'vast majority' of Fed officials agree that there are elevated upside risks to inflation and downside risks to employment, with the majority highlighting the Middle East conflict as a factor magnifying these risks [1]. The minutes show concern that a prolonged conflict could weaken labor markets and prompt rate cuts, while persistently higher oil prices could keep inflation elevated and potentially require rate hikes to anchor expectations [1].
UOB maintains its forecast for a pause through April, followed by two rate cuts in June and the third quarter of 2026, which would bring the Fed Funds Target Rate to 3.25% by year-end 2026 [1]. However, investors are cautioned to remain vigilant for the risk of further delays in Fed rate cut timing or increasing difficulty for the Fed to cut rates in the second half of the year if energy prices rise substantially due to spillover from the Middle East conflict [1].
CONCLUSION
The FOMC minutes underscore a divided Fed, with most officials leaning toward rate cuts amid labor market concerns, but inflation and geopolitical risks could delay action. UOB expects a pause followed by two cuts in 2026, targeting a Fed Funds Rate of 3.25% by year-end. Investors should monitor energy prices and geopolitical developments closely, as these factors may impact the Fed's rate cut trajectory.