The Federal Reserve might have raised interest rates by half a percentage point last month to deal a more decisive blow to soaring inflation, but Russia's invasion of Ukraine gave policymakers cold feet, minutes of the U.S. central bank's March meeting showed on Wednesday.

"Many participants noted that ... they would have preferred a 50-basis-point increase in the target range for the federal funds rate at this meeting," the minutes said. "In light of greater near-term uncertainty associated with Russia's invasion of Ukraine, they judged that a 25-basis-point increase would be appropriate at this meeting," the minutes stated.

Russia launched its invasion of Ukraine on Feb. 24, days after several Fed policymakers had indicated an openness to lifting the benchmark overnight interest rate by half a percentage point at the March 15-16 meeting.

In an appearance before Congress a week later, Fed Chair Jerome Powell called the war a "game changer" and revealed he would support a quarter-percentage-point hike, effectively telegraphing the Fed's decision ahead of time and delivering some measure of policy certainty even as financial markets remained on edge from the invasion.

The minutes show that Powell's view on a smaller incremental rate rise was then widely shared by his colleagues, who duly decided at the March meeting to raise the federal funds rate to a range of 0.25%-0.50% from the previous near-zero level, and signaled that borrowing costs would continue to rise this year and in 2023.

St. Louis Fed President James Bullard dissented, preferring a bigger move in the face of inflation that's running more than three times the Fed's 2% target.

"Looks like they delayed a 50-(basis) point increase because of the Russia-Ukraine conflict, which makes sense," said Alan Lancz, president of Alan B. Lancz and Associates in Toledo, Ohio.

Primary among the Fed's fears at the time was heightened uncertainty about the impact on the U.S. economy from the war and the West's sanctions on Russia, which have driven up energy and food prices.


Since the March meeting and as the war has dragged on with no clear end in sight, a number of Fed policymakers including Powell have noted that the primary risk from the conflict is further upward pressure on inflation, not a hit to U.S. economic growth, bolstering the need for bigger U.S. rate hikes.

In stating that a half-percentage-point hike would have been in the offing if not for the conflict in Ukraine, Fed policymakers are putting financial markets on notice of what's ahead, said Joseph Lavorgna, chief economist for the Americas at Natixis.

"They're mentioning that just to get the market ready for the 50," Lavorgna said.

That message seemed to have gotten through, even before the release of the minutes. Market participants are betting that a half-percentage-point rate increase is still ahead, likely not just for the upcoming May meeting, but at the June and July meetings as well. A string of three 50-point increases would mark the sharpest increase in the fed funds rate since the early 1980s.

"Many participants noted that one or more 50-basis-point increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified," the minutes said.

The Fed's last half-percentage-point rate hike was in 1995.