Federal Reserve officials are widely expected to keep interest rates unchanged this week as the Iran war drives oil prices higher and economic data signals slowing growth.
By yourNEWS Media Newsroom
Federal Reserve officials are expected to keep interest rates unchanged at their policy meeting this week as rising geopolitical tensions in the Middle East and signs of weakening economic data complicate the central bank’s outlook.
The Federal Reserve’s policy-setting committee is scheduled to begin a two-day meeting on Tuesday, with a decision on the benchmark lending rate expected to be announced Wednesday.
The central bank previously reduced rates three times last year before pausing adjustments at its January meeting.
Federal Reserve policymakers operate under a dual mandate: maintaining price stability with inflation near a two percent target while supporting maximum employment across the U.S. economy.
The ongoing war involving the United States and Israel against Iran has introduced new uncertainty into that balance. The conflict has sent global oil prices sharply higher, raising concerns that energy costs could push inflation upward even as economic growth slows.
Economists say the situation creates a difficult challenge for policymakers.
“This is certainly a bind for the Fed, because supply shocks are extremely hard to deal with in that they lift inflation and they curb output,” EY-Parthenon chief economist Gregory Daco said.
Affordability has become a central issue in domestic politics as consumers continue to report high prices for everyday goods. President Donald Trump has argued that inflation pressures are easing even as many households say living costs remain elevated.
Trump has repeatedly criticized Federal Reserve Chair Jerome Powell and called for lower interest rates. The Justice Department has also threatened Powell with a criminal indictment related to an investigation into cost overruns connected to a Federal Reserve renovation project.
Inflation in the United States has declined from its peak of 9.1 percent during the COVID-19 pandemic, but it remains above the Fed’s long-term target.
“Unlike other countries, which have already achieved some level of price stability, we’re five years in without price stability,” said Diane Swonk, chief economist at KPMG.
Swonk warned that prolonged disruption tied to the Iran conflict could push inflation higher again.
“I think the main story here is that we are seeing inflation moving away from the Fed’s two-percent target, and that will lead many Fed policymakers to adopt an even more hawkish stance,” said Daco.
At the same time, increasing interest rates to curb inflation risks weakening the labor market, complicating the Fed’s second mandate of maintaining employment.
Government data released earlier this month showed the U.S. economy unexpectedly lost 92,000 jobs in February while the unemployment rate climbed to 4.4 percent.
Economists say the headline unemployment figure may be masking shifts beneath the surface. Hiring demand has declined, but unemployment has not risen sharply because the available labor pool has also shrunk following the Trump administration’s immigration enforcement policies.
Daco said several labor market indicators point to cooling demand, including a hiring rate at a decade low, slowing wage growth and growing discussion among companies about replacing workers with artificial intelligence.
Swonk said geopolitical uncertainty tied to the Iran conflict could intensify those pressures.
“Uncertainty acts as its own tax on the economy, and one of the first lines of defense that firms do is they freeze hiring,” she said.
Recent economic data has also raised concerns about broader growth. Government figures revised U.S. gross domestic product sharply lower for the final months of 2025.
Some Federal Reserve officials, however, have downplayed the likelihood that the surge in oil prices will create long-lasting inflationary pressure.
Federal Reserve Governor Christopher Waller said during a television interview last week that while rising gasoline prices could burden consumers, the effect on inflation may be temporary.
“But for us thinking about policy going forward, this is unlikely to cause sustained inflation,” Waller said.
Other economists caution that the economic effects of the conflict could persist beyond the initial oil shock.
“I think people are discounting the risk of the lingering effects,” Swonk said, noting that supply disruptions tied to conflict often affect multiple sectors of the economy.
“There’s no question they’re between a rock and a hard spot, and it just got harder,” she said of Federal Reserve policymakers balancing the risks to inflation and employment.
Financial markets have already begun adjusting expectations for interest rate cuts. Traders have reduced the likelihood that the Fed will lower rates in the near term, while some analysts say rate increases could become possible if inflation accelerates again.
“This is not a one-way street,” Swonk said. “We’re at a busy intersection, and the stoplight’s broken.”
Original article
Comments