Photo: ANNABELLE GORDON / AFP / Getty Images
The Federal Reserve kept its benchmark interest rate unchanged on Wednesday (March 18), holding the federal funds rate in a range of 3.5% to 3.75% for the second consecutive meeting as the ongoing war with Iran rattles global energy markets and complicates the central bank's economic outlook.
The decision was widely expected, with traders pricing in a near-certainty that rates would hold. The Federal Open Market Committee (FOMC) released its quarterly "dot plot," a chart showing where officials expect interest rates to go, alongside the decision, revealing that a majority of Fed officials still project one rate cut sometime in 2026.
The spike in energy prices triggered by the Iran war has handed the Fed a difficult balancing act. Higher gas prices push inflation up, which typically leads the central bank to hold or raise rates. But if oil prices stay elevated long enough, they could slow the broader economy and push up unemployment, which would normally call for rate cuts.
Oil prices remain near $100 per barrel, with Brent crude trading above $104 and U.S. benchmark WTI crude above $97 as of Wednesday afternoon. The average 30-year mortgage rate has already climbed to 6.1%, up from 6% the previous week, as markets anticipate that sticky inflation will keep the Fed on hold for months to come.
New data released Wednesday added more heat to an already complicated picture. The Producer Price Index (PPI) surged 0.7% in February, more than double the 0.3% economists had predicted. Year over year, wholesale prices rose 3.4%, topping estimates of 3%.
Core inflation, which excludes food and energy, rose 3.1% in January from a year earlier, the biggest jump in more than two years. The Fed's target for inflation is 2%.
The Fed is also navigating a major leadership change. Jerome Powell's term as chair ends May 15, and President Donald Trump has nominated former top Fed official Kevin Warsh to replace him. Warsh's Senate confirmation has stalled, however, amid Republican objections tied to a Justice Department investigation into Powell over his testimony about a Federal Reserve building renovation.
The Fed's next scheduled meetings are in late April and June. Most economists do not expect any change to rates at either of those gatherings.