On Wednesday, Nick Timiraos, the chief economics correspondent for The Wall Street Journal widely known as the "new Fed whisperer," wrote that a ceasefire between the U.S. and Iran would offer a reprieve from the latest acute threat facing the global economy. For the Federal Reserve, however, it would likely amount to swapping one problem for another: an energy shock strong enough to keep inflation elevated but not severe enough to crush demand, leaving interest rates on hold for an extended period.

Timiraos cited the Federal Reserve’s meeting minutes from March 17–18, released on Wednesday.

The minutes emphasized that the Iran conflict had not made the Fed averse to cutting rates, but had further complicated an already cautious policy stance. Even before the outbreak of hostilities, the path for rate cuts had been narrowing. The U.S. labor market had stabilized sufficiently to ease recession fears, while progress in bringing inflation back to the Fed’s 2 percent target had stalled.

According to the March minutes, partly due to risks of a prolonged conflict, a vast majority of participants noted that progress in reducing inflation toward the target could be slower than previously anticipated, and saw upside risks to inflation remaining above the committee’s objective.

At the March FOMC meeting, the Federal Reserve kept its benchmark interest rate steady in a range of 3.50% to 3.75%, marking the second consecutive pause following three consecutive rate cuts in the final months of 2025.

Timiraos argued that, paradoxically, if the risk of a broader conflict dragging down growth and tipping the economy into recession was the strongest remaining case for resuming rate cuts, then an end to hostilities could make it harder for the central bank to ease policy in the near term.

A ceasefire would remove the worst-case scenario—a severe price spike disrupting supply chains and destroying demand—but it would alleviate inflation pressures by less than it reduces extreme downside risks. Energy and commodity prices that rose during the conflict may not fully retreat, and financial conditions are easing on optimism surrounding the ceasefire, as seen in Wednesday’s market rally.

With the risk of severe demand destruction off the table, what remains is an unresolved inflation problem, compounded by a lingering "echo effect" from recent energy price increases that could persist even under a sustained ceasefire, albeit in milder form.

"As recession odds fall, inflation odds rise because price pressures remain but demand destruction is less severe," said Marc Sumerlin, managing partner of economic consulting firm Evenflow Macro.

At the same time, Timiraos noted, a ceasefire would reduce another low-probability but highly disruptive risk: a sustained surge in energy prices that could force the Fed to consider raising interest rates.

The March Fed minutes showed officials weighing the dual risks posed by the conflict: a sudden deterioration in the labor market that could warrant rate cuts, on the one hand, and persistently high inflation that could call for tighter policy, on the other.

In projections following the meeting, most officials continued to expect at least one rate cut this year. However, the minutes stressed that this outlook hinges on inflation resuming its descent toward the target. Two officials have pushed back the timing at which they see rate cuts as appropriate, citing a lack of recent improvement in inflation.

The post-meeting statement still signaled that the next policy move was more likely to be a cut than a hike. But the minutes showed a growing number of officials, compared with the January meeting, favored removing this "bias." Adjusting the language, the minutes noted, would signal that rate hikes could also be appropriate if inflation remained above target.

Timiraos wrote that the Fed’s current stance reflects a " compounding problem," citing recent remarks by Fed Chair Jerome Powell.

Last week, Powell said the Fed was facing its fourth major supply shock in recent years, following the pandemic, the war in Ukraine, and last year’s increase in tariffs on imported goods.

While the Fed has ample room to wait and assess the economic effects, Powell warned that a succession of one-off shocks could erode public confidence that inflation would return to normal levels—a risk the Fed watches closely, as it views inflation expectations as potentially self-fulfilling.

Even before this week’s ceasefire announcement, current and former Fed officials had signaled that a quick resolution to the conflict would not mean a rapid return to normal policy, Timiraos pointed out. In part, that is because the world has seen how easily the Strait of Hormuz can be blocked—a vulnerability that could be priced into energy markets and corporate decisions for years to come. Some geopolitical analysts doubt a ceasefire will send energy prices all the way back to pre-conflict levels. Iran has strong incentives to keep oil prices elevated to fund reconstruction and maintain leverage over its Gulf neighbors.

St. Louis Fed President Musalem said last week that even if the conflict ends in the coming weeks, he will be watching for "ripple effects" that could keep prices elevated after supply chains recover.

"I’m looking for these echoes because even if the war ends quickly, it takes time to restore damaged capacity," he said.

Timiraos added that the Fed’s cautious approach echoes a framework laid out more than two decades ago by then-Fed Governor Ben Bernanke: central banks should respond to oil price shocks based on the level of inflation at the time of the shock.

If inflation is already low and expectations are anchored, policymakers can "look through" the inflationary pressure from higher energy prices. But if inflation is already above target, the risk that supply shocks will further unanchor inflation expectations calls for tighter policy—and several officials believe that is the situation the Fed now faces.