Fed Holds Rates at 3.5%–3.75% as Iran War Oil Shock Lifts 2026 Inflation Forecast
The Fed left the federal funds rate at 3.5%–3.75% for a second straight meeting and in its new projections raised its 2026 inflation outlook (to roughly 2.7%), reflecting an Iran war–driven spike in oil and gasoline prices. Hotter-than-expected core PCE (3.1% in January), a revised payrolls picture showing a 92,000 job decline and 4.4% unemployment, and the energy shock have made plans for rate cuts this year more uncertain as Chair Jerome Powell’s term nears its May end and Kevin Warsh’s nomination remains stalled.
📌 Key Facts
- On March 18, 2026 the Federal Reserve left the federal funds rate unchanged at a 3.50%–3.75% target range, marking a second straight pause.
- The Fed released a new Summary of Economic Projections (dot plot) for 2026; officials debated moving from a projection of one 0.25‑point cut to zero cuts this year, but the SEP ultimately still showed one 0.25‑point cut in 2026 (unchanged from December).
- The Fed raised its 2026 headline and core inflation projections to 2.7% (up from prior forecasts of about 2.4% and 2.5%), though some analysts warn the Iran war energy shock could push inflation closer to ~3% by late 2026.
- Energy prices have jumped since the Iran war: AAA put the U.S. national average gasoline price at $3.79 per gallon (up $0.88 from a month earlier), a key factor behind the higher inflation outlook.
- Inflation measures show ongoing pressures: core PCE inflation was 3.1% year‑over‑year in January, and the Producer Price Index rose 3.4% year‑over‑year in February — suggesting firming inflation even before the energy shock.
- The labor market is cooling: employers cut 92,000 jobs in February, unemployment rose to 4.4%, and revisions leave the economy with virtually no net job growth over the past six months, calling into question prior ‘low‑hire, low‑fire’ characterizations.
- Economists (e.g., Pantheon Macro’s Sam Tombs) still see the dot plot biased toward easing in 2026–27, but warn markets could react sharply if the median Fed official projects no rate cuts.
- Fed leadership and oversight issues loom: Jerome Powell’s term as chair ends in May, Kevin Warsh’s nomination is stalled in the Senate amid a DOJ criminal probe (two DOJ subpoenas were recently quashed by a judge), leaving Powell likely to remain longer and raising questions about Fed independence.
📊 Relevant Data
Black and Latino households pay 13-18% more on average for energy per square foot of housing compared to White households.
Oil price uncertainty tends to increase the total unemployment rate by 13 to 35 basis points, with the effect on Black and Hispanic unemployment rates being about twice as large.
Racial and ethnic disparities in unemployment and oil price uncertainty — ScienceDirect
Black and Hispanic households have experienced more inflation than other groups since the reopening of the economy from the pandemic.
US Bifurcated – Economic backdrop deepens racial disparities — Oxford Economics
📊 Analysis & Commentary (1)
Roundup #79: The revenge of macroeconomics
"The piece argues that the Iran war’s oil shock has brought macroeconomics back to the forefront—forcing forecasters to postpone Fed rate cuts, exposing the limits of one‑off fixes like SPR releases, and underlining that policymakers must reckon with large supply‑side geopolitical shocks rather than assume a smooth return to disinflation."
📰 Source Timeline (6)
Follow how coverage of this story developed over time
March 18, 2026
6:28 PM
Federal Reserve holds interest rates steady, citing economic uncertainty
New information:
- FOMC on March 18, 2026 left the federal funds rate unchanged at a 3.5%–3.75% target range, marking a second straight pause this year.
- The Fed’s new Summary of Economic Projections still shows one 0.25‑point rate cut in 2026, unchanged from December, signaling policymakers expect the Iran war energy shock to be transitory enough to resume cuts later.
- The Fed raised its 2026 headline and core inflation projections to 2.7% (from 2.4% and 2.5% respectively).
- The article notes February’s Producer Price Index rose 3.4% year‑over‑year, the hottest in a year, suggesting inflation was firming even before the Iran conflict hit energy prices.
- The piece underscores that the U.S. lost 92,000 jobs in February and highlights that Powell will face questions about both the energy shock and his looming May term end with Kevin Warsh’s stalled nomination.
6:07 PM
Federal Reserve announces it will hold interest rates steady
New information:
- CBS piece confirms, in a separate source, that the Fed has held the federal funds rate at 3.5%–3.75%.
- No additional detail beyond the bare decision and rate range is provided in this clip compared with the existing multi‑source coverage that already includes the same rate range and date.
9:00 AM
The Federal Reserve is facing tough choices as the economy faces deep uncertainty
New information:
- Labor Department data show U.S. employers cut 92,000 jobs in February, with unemployment rising to 4.4% and revisions leaving the economy with virtually no net job growth over the last six months.
- January inflation on the Fed’s preferred measure is 3.1%, still well above the 2% target, and Fed officials had previously projected 2.5% inflation and 4.4% unemployment by year‑end before the Iran war shock.
- A federal judge recently quashed two DOJ subpoenas to the Federal Reserve, calling them part of an improper harassment campaign to force Powell and colleagues to cut rates, and Sen. Thom Tillis is blocking Kevin Warsh’s confirmation over DOJ’s refusal to drop the criminal probe.
- Jerome Powell’s term as chair ends in May, but because Warsh is stalled, Powell could end up remaining as chair into the summer and has the option to stay on the Fed Board until 2028, which analysts frame as part of his effort to defend Fed independence.
4:51 AM
Federal Reserve could signal no interest rate cuts this year in wake of Iran war
New information:
- Fed officials are considering altering their projection from one rate cut in 2026 to zero in the new quarterly Summary of Economic Projections.
- The article reports the policy rate is almost certain to be held at about 3.6% for the second consecutive meeting.
- AAA data cited in the piece put national average gasoline at $3.79 per gallon as of Tuesday, up $0.88 from a month earlier, and the article notes this Iran war–driven spike will likely push the Fed to raise its inflation forecast, potentially to around 3% even by late 2026.
- The story highlights that the Iran war, launched Feb. 28 by the Trump administration, is a central reason the Fed now faces the worst‑case combination of higher inflation and a possible rise in unemployment.
- It notes this is one of Powell’s last meetings as chair, with his term ending May 15 and his replacement, Kevin Warsh, stalled in the Senate over a DOJ investigation into Powell that recently saw subpoenas quashed by a judge.
March 17, 2026
3:56 PM
New economic projections signal a tricky Federal Reserve path
New information:
- Axios reports that the Fed’s new Summary of Economic Projections and dot plot, due Wednesday, will be the first for 2026 and will show how policymakers are factoring in the Iran war energy shock alongside already hot inflation.
- Pantheon Macro economist Sam Tombs expects the dot plot to still show a bias toward easing in 2026 and 2027, but warns markets could react sharply if the median Fed official now projects no rate cuts this year.
- Axios notes that core PCE inflation accelerated to 3.1% year‑over‑year in January from 2.8% in November, and that revised jobs data imply essentially no net hiring in December or February, raising doubts about Jerome Powell’s earlier "low‑hire, low‑fire" labor-market characterization.
March 16, 2026