The Federal Reserve held rates steady Wednesday for the second meeting in a row as the war in Iran clouds an already murky economic picture. In its statement, the Fed acknowledged the war, but kept its language cautious, saying the economic implications of the Middle East conflict remain “uncertain.”
The decision was nearly unanimous, save for Stephen Miran, the Trump-appointed governor, who cast his fifth consecutive dissent in favor of a quarter-point cut. But the rest of the committee opted to sit tight, citing elevated uncertainty on both sides of the Fed’s dual mandate: inflation that won’t come down and a labor market that shocked economists with its slackness last month.
The Iran factor
The conflict in Iran, now in its third week, has thrown a wrench into whatever plans the Fed and its watchers had for 2026. Brent crude jumped above $109 a barrel Wednesday, up from around $72 before the fighting started, while gas prices have surged nearly $1 per gallon nationwide since the war began.
Higher oil costs put the Fed in a bind because they have both depressing and inflating effects. High costs of energy function like a tax on consumers, dragging on growth, but they also feed directly into inflation—exactly the problem the Fed has been trying to solve for years.
Jobs going the wrong way
The labor market gave the Fed little comfort heading into this meeting. February’s payroll report showed employers cutting 92,000 jobs, a sharp reversal from January’s surprise gain, and the unemployment rate ticked up to 4.4%. The Fed’s own projections don’t see that number getting worse: Officials held their year-end unemployment forecast at 4.4%, but monthly hiring has essentially flatlined.
Inflation still running hot
On the morning of the decision, fresh wholesale price data reinforced the Fed’s caution. The Producer Price Index rose 0.7% in February, with the year-over-year rate hitting 3.4%, much worse than economists expected. The Fed’s preferred measure of inflation, core PCE, is already running hot at 3.1% and hasn’t eased much in two years.
What comes next
Most officials still see at least one rate cut this year, but the divisions in the Fed seem sharper than ever. Seven of 19 policymakers projected no reductions at all in 2026, while five penciled in a half-point or more in cuts. Markets, for their part, have pushed rate-cut expectations all the way out to April 2027. Fed Chair Jerome Powell will speak with reporters at 2:30 p.m. EST. It is his second-to-last conference as chair before handing the reigns to his successor, likely former Fed governor Kevin Warsh, President Donald Trump’s nominee.