Federal Reserve holds interest rates steady, citing elevated economic uncertainty
The Federal Reserve on Wednesday left its benchmark interest rate unchanged, marking the central bank’s second consecutive pause in 2026. In its policy statement, the Fed said U.S. economic uncertainty remains elevated, adding that the impact of the Iran war also remains unclear.
The Fed maintained the federal funds rate — what banks charge each other for short-term loans — in its current range of 3.5% to 3.75%. The decision to keep rates steady was widely expected by investors.
Fed officials indicated they still expect to cut their key rate once in 2026, the same projection as in December. By keeping their forecast for a rate cut this year and next, policymakers appear to expect that the spike in energy prices from the Iran war will have a transitory effect on inflation and the economy.
The central bank is facing a murkier economic outlook for the U.S., with the Iran war causing energy prices to spike and threatening to drive up inflation. Before the start of the war on February 28, economists had penciled in the next rate cut for the Fed’s June meeting, but the probability of that happening is now seen as slim, according to CME FedWatch, which monitors trader sentiment.
“The conflict with Iran has dramatically altered the backdrop to the March Federal Open Market Committee (FOMC) meeting and significantly increases the risks to inflation and the economy,” Michael Pearce, chief U.S. economist at Oxford Economics, said in a March 17 research note.
He added, “Uncertainty around the war raises the odds that the Fed remains on hold for longer.”
Signals suggest that inflation remained sticky even before the Iran war drove up energy prices this month. On Wednesday, the Labor Department reported that its producer price index, which measures inflation before it hits consumers, rose 3.4% in February on an annual basis. That increase — the largest in a year — was hotter than expected by economists.
“This isn’t the kind of PPI report the Fed wants to see,” Nationwide Financial Markets economist Oren Klachkin said in an email. “This report suggests inflation was going to accelerate even before the Iranian conflict hit.”
At the same time, the labor market is also facing headwinds. The U.S. shed 92,000 jobs in February, a sharp and unexpected setback after economists had forecast a gain of 60,000 jobs.
Powell’s outlook
Investors will be listening closely for clues when Federal Reserve Chair Jerome Powell speaks at a press conference at 2:30 p.m. EST on Wednesday to discuss the FOMC’s decision.
In addition to his comments on the economy, he’s likely to be asked about his status at the Fed, with his term as chair ending in May. Powell could continue as an FOMC member through January 2028.
In January, President Trump nominated former Fed official Kevin Warsh to replace Powell as chair. Warsh still requires Senate confirmation to step into the role.
“Expect a lively news conference after the meeting as Fed Chair Jerome Powell not only fields questions about the energy shock but also addresses his status at the Fed,” RSM chief economist Joe Brusuelas said in an email.
Brusuelas said he believes there will still be one 0.25-percentage point rate cut in 2026, but added that it “will be a close call given the risk of rising inflation.”
—This is breaking news and will be updated.
