Federal Reserve holds rates as Iran war oil shock complicates inflation outlook
The Federal Open Market Committee voted unanimously to hold the federal funds rate at 4.25%-4.50%, citing the oil price surge from the Iran conflict as a major upside risk to inflation forecasts that makes rate cuts in 2026 increasingly unlikely.
Economy — March 19, 2026
The Federal Reserve held its benchmark interest rate unchanged at a target range of 4.25% to 4.50% at its March 2026 meeting, with Federal Open Market Committee members citing the sharp rise in oil prices driven by the Iran conflict as a significant complicating factor for the inflation outlook.
Fed Chair Jerome Powell, speaking at a press conference following the FOMC decision, said the committee was operating in an environment of 'elevated uncertainty' and that the oil price shock — Brent crude having risen more than 35% since late February — had materially changed the inflation calculus.
'We entered 2026 expecting to assess conditions for further rate reductions,' Powell said. 'The geopolitical developments of the past month have introduced a significant new variable. A supply-side oil shock of this magnitude will flow through to consumer prices. We will not accommodate that process by easing monetary policy prematurely.'
Core PCE inflation, the Fed's preferred measure, had been running at 2.6% in January before the conflict began. Economists at Morgan Stanley and Goldman Sachs revised their year-end core PCE forecasts upward by between 0.4 and 0.7 percentage points following the Brent crude price spike.
Markets, which had entered 2026 pricing in two 25-basis-point rate cuts before the end of the year, sharply repriced their expectations following the FOMC statement. Fed funds futures now imply only a 20% probability of a single cut in 2026, compared with approximately 75% probability at the start of the year.
Bond markets reflected the shift: the 10-year US Treasury yield rose to 4.68% following the statement, its highest level since October 2025, as investors incorporated higher-for-longer rates and elevated inflation expectations.
Powell was careful to note that the Fed retained the capacity to cut if the oil shock proved short-lived or if the broader economy weakened significantly. 'We are data-dependent. If conditions change, we will respond,' he said. 'But our base case has shifted materially since January.'
