Federal Reserve Unlikely to Cut Interest Rates Amid Iran Conflict

The Federal Reserve meets for two days this week and will wrap up on Wednesday. Chair Jerome Powell is expected to say the key rate remains near 3.6 percent. This would mark a second consecutive meeting with no change to short-term rates.

Policy outlook and projections

The Fed will publish quarterly projections on Wednesday. Officials may drop a prior forecast for one rate cut this year. Changing to zero cuts would signal a notable shift after 18 months of tentative easing plans.

Market observers now view the Federal Reserve as unlikely to cut interest rates in the near term. That view reflects new inflation risks tied to global events.

Energy shock from the Iran conflict

The Trump administration launched a conflict with Iran on Feb. 28, according to administration sources. The fighting has pushed oil and gasoline prices higher. AAA reported a national gas average of $3.79 per gallon on Tuesday. That figure was 88 cents higher than a month earlier.

Higher pump prices will lift headline inflation for at least the next month or two. The Fed must revise its December projection that expected inflation to fall to 2.6 percent by year-end.

Longer-term inflation risks

Many economists expect the Fed could forecast inflation near 3 percent into late 2026. Core inflation, which excludes food and energy, rose 3.1 percent year-over-year in January. That persistence complicates room for future rate cuts.

Labor market and economic growth

Employment data have softened. Employers cut 92,000 jobs in February. That followed a gain of 130,000 jobs in January.

The unemployment rate ticked up to 4.4 percent from 4.3 percent. Rising joblessness and higher inflation create a difficult policy mix for the Fed.

Leadership and timing

This meeting will be among Powell’s last as Fed chair. His term ends May 15. President Donald Trump has nominated Kevin Warsh as his replacement.

Warsh’s confirmation faces delays in the Senate. Several Republican senators objected because of a Justice Department inquiry into Powell’s testimony about a building renovation. Last Friday, a judge tossed two DOJ subpoenas tied to that probe. U.S. Attorney Jeannine Pirro said she plans to appeal the ruling.

What comes next

If Warsh is not confirmed by May 15, Powell could remain in place until a successor is named. For now, officials must weigh the inflationary impact of higher energy costs against a weakening job market.

Filmogaz.com will monitor the Fed’s statement, the new projections, and emerging economic data. Markets will watch for signals about the timing of future rate moves.