It's still possible the Federal Reserve will slash interest rates again this year -- but don't count on it.

With input prices soaring, interest rates aren't the top concern for farmers and ranchers these days. Still, lower rates would be welcome. Every little bit helps.

The Fed held rates steady at its March meeting by an 11-1 vote, the dissenter being Trump appointee Stephen Miran, who wanted a quarter-point cut. The Fed's federal funds rate is currently in the 3.5% to 3.75% range.

Eighteen months ago, DTN's then-Lead Analyst Todd Hultman said the Fed's benchmark rate needed to go below 3% "to take some of the pressure off the ag economy." (https://www.dtnpf.com/…)

In the "dot plot" released after the Fed's March meeting, three of the 19 members of the rate-setting Federal Open Market Committee forecast a fed funds rate below 3% this year and 12 predicted at least one additional rate cut this year. (https://www.federalreserve.gov/…) That sounds promising.

But in the previous dot plot in December, four FOMC members forecast a rate below 3% this year. The decline in sub-3% forecasts was a subtle but clear signal that rates may not be coming down. Even Miran has turned cooler in pushing cuts; at the Fed's December meeting, he'd favored a half-point reduction. (https://www.federalreserve.gov/…)

Moreover, something startling popped up in the March dot plot: One of the 19 penciled in a rate HIKE in 2027. An outlier view? Perhaps not. The minutes of the Fed's January meeting said "several" officials thought rate increases could become necessary if inflation remains above the Fed's 2% target. (https://www.federalreserve.gov/…)

The FOMC members' uncertainty about cuts reflects uncertainty about the economy. No wonder. The outlook was getting murkier even before the Iran War -- we'll discuss that in a minute. The war, though, has completely befogged it.

Hoping the war is temporary and the economic impact ends when the war ends, Fed policymakers might be tempted to wait it out. But hope isn't a policy.

What if the war isn't temporary? What if it goes on for months or years? And what if it ends with Iran retaining control over the Strait of Hormuz?

Even in defeat Iran might be able to block the strait or scare shipping away with threats to block it. If instead there's a negotiated settlement and the Iranians promise to unblock it, they will likely retain the ability to reblock it at will. Whatever happens, markets may have to price in increased risk, elevating energy prices.

A prolonged rise in energy prices would spread to prices generally. Wages would follow, triggering further price increases. FOMC members don't have a crystal ball, but these plausible scenarios have to dampen their enthusiasm for lower rates.

The Fed has been cutting rates the last couple of years despite inflation running higher than the central bank's 2%-a-year target thanks to the public's inflationary expectations seeming "well-anchored." A prolonged rise in energy prices would unanchor them. The Fed would indeed feel compelled to raise rates.

Even before the war began inflation wasn't cooperating. In February, the consumer price index was 2.4% higher than a year earlier, still above the 2% goal. (https://www.bls.gov/…) The Fed's preferred measure of inflation, personal consumption expenditures, rose 2.8% year-on-year in January, 3.1% excluding volatile food and energy prices. (https://www.bea.gov/…)

In light of all this, you might wonder how Fed policymakers could still be predicting rate cuts at all. The explanation lies in the Fed's dual mandate. Congress has tasked it with achieving both price stability and maximum employment.

Employment has been far from maximum. Nonfarm employment fell by 92,000 jobs in February, the Bureau of Labor Statistics reported, and the relatively small December and January increases were revised down by 69,000 jobs. (https://www.bls.gov/…) The Iran war could easily weaken the labor market further.

That would justify a rate cut if inflation were under control. The "if" is a big reason a rate cut isn't guaranteed.

At his post-meeting press conference, Fed chair Powell said his FOMC colleagues' rate-cut predictions assume inflation is coming down again. (https://www.federalreserve.gov/…) At a later discussion with Harvard students, he worried that the energy-price shock from the Iran War could unanchor inflation expectations. (https://www.wsj.com/…)

Could the president's appointee to succeed Powell, Kevin Warsh, push through a cut? Well, first he has to win Senate approval. A Republican senator has vowed to stymie his nomination until the administration's criminal investigation of Powell ends.

A federal judge has blocked the subpoenas a prosecutor issued, saying they were politically motivated. The administration has vowed to appeal. That leaves Warsh's nomination hanging.

Once confirmed, will Warsh be able to persuade the other FOMC voting members to go along with cuts if inflation is running hot? He's said to be a persuasive fellow. Considering the situation and the committee's recent votes and forecasts, he may not be persuasive enough.

(https://www.dtnpf.com/…)

Urban Lehner can be reached at urbanize@gmail.com

(c) Copyright 2026 DTN, LLC. All rights reserved.