Fed minutes show officials consider rate increase as inflation persists
U.S. stock markets fell on Wednesday after President Donald Trump, speaking at the NATO summit in Ankara, said the ceasefire with Iran was over. Trump criticized Iran’s leadership, calling them “sick people,” and said he was “very upset” with the country’s military alliance with Spain. “As far as I’m concerned, it’s over,” Trump said, though he added that U.S. negotiators wanted to continue talks.
The comments sent oil prices sharply higher. Brent crude, the global benchmark, jumped more than 5% to crest $80 a barrel. U.S. stocks fell in step: the Dow Jones Industrial Average dropped 1.09%, or 500 points, at closing Wednesday afternoon. The S&P 500 posted a small loss, closing at 7,503.85, while the tech-heavy Nasdaq Composite rose slightly to 25,818.69. Global stocks also declined, with the UK’s FTSE 100 down 1% and Japan’s Nikkei 225 falling 2.1%.
The economic impacts of the Iran conflict have reverberated across the globe. On Wednesday, the International Monetary Fund lowered its global economic growth forecast to 3%, down from 3.1% in April, citing conflict in the Middle East and pressured AI spending. Global growth in 2024 and 2025 averaged 3.5%.
While oil prices fell sharply during the ceasefire, gas prices have remained high. U.S. gas prices at the pump average $3.79 per gallon, $0.65 higher than a year ago, according to AAA. U.S. diesel futures also rose 13% on Wednesday after Russia implemented a diesel export ban following a Ukrainian drone site that hit key refineries.
In May, the annualized U.S. inflation rate jumped to 4.2%, a three-year high and more than double the Federal Reserve’s target inflation rate of 2%. Minutes from the last Fed board meeting, released two weeks later, showed that while there was some disagreement over when inflation will ease, there appeared to be little discussion of lowering interest rates in the near future. This is a change from previous meetings, where some officials had argued that inflation would be temporary.
According to the minutes, some officials believe the current interest rate, set at a target range of 3.5% to 3.75%, could be maintained or even lowered if inflation goes down. Others indicated rates would need to be increased before the end of the year to deal with rising inflation. “Both total and core inflation were higher than their levels a year earlier, a development that the staff attributed to a variety of factors, including the pass-through of past tariff increases, higher energy and input costs stemming from the conflict in the Middle East, and the surge in demand related to the AI buildout,” the minutes said.
Trump has publicly demanded the Fed lower interest rates despite elevated inflation. Fed chair Kevin Warsh stepped into the role in May after being nominated by Trump.