Fed holds interest rates steady amid Iran war, rising oil prices

The Federal Reserve left its key interest rate unchanged on March 18 as policymakers weighed the uncertain long-term economic impact of the Iran war, inflation readings that have yet to account for oil price spikes resulting from the conflict, and mixed signals about the U.S. labor market. 

The decision to pause leaves the federal funds rate, which serves as a benchmark for interest rates across the country, at a range of 3.5% to 3.75%, after officials held it steady in January following three cuts late last year. 

“The implications of developments in the Middle East for the U.S. economy are uncertain,” the Fed said in a statement explaining the decision, adding while economic activity has been expanding at a "solid pace," jobs gains remain low and inflation is still somewhat elevated.

Of the Federal Open Market Committee's 12 voting members, 11 voted in favor of keeping the target rate range unchanged. Fed Governor Stephen Miran dissented, preferring to lower the rate range by a quarter-point, as he has for the last several meetings.

During his news conference following the decision, Jerome Powell said he would continue to serve as the central bank's leader past May 15, when his term as chair is scheduled to end, until the Senate confirms his successor. He added he plans to stay on the Board of Governors, where his term does not end until January 2028, at least until the Department of Justice's investigationinto him is "truly over."

More: Fed to weigh interest rates amid Iran war, potential price increases

ICYMI: Takeaways from the March FOMC meeting

Rachel Barber

• The Federal Open Market Committee held its benchmark interest rate steady at a range of 3.5% to 3.75%, as uncertainty about the Iran war's economic impact clouded the outlook.

• The dot plot included in the Fed's Summary of Economic Projections shows that, as of March 18, committee members' median expectation for the federal funds rate at the end of 2026 is 3.4%, implying one quarter-point rate cut this year.

• Jerome Powell said he would continue to serve as chair of the Federal Reserve until the Senate confirms his successor. His term ends in May, but if President Donald Trump's nominee, Kevin Warsh, isn't confirmed by then, Powell said he'd continue as chair on a temporary basis. He plans to stay on the Fed's Board of Governors, where his term ends in January 2028, at least until the Department of Justice's investigation into him is over.

• Powell said the Fed is in "a difficult situation" balancing its dual mandate of stable prices and maximum employment given recent inflationary shocks and a soft job market. He added, though, the fears of "stagflation" are premature.

• Stocks and bonds sank after the Fed left rates unchanged amid inflation concerns, with oil and gas prices surging.

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Stocks slide into the close, bonds sell off

Andrea Riquier

Stocks tumbled after the Fed stood pat on interest rates, citing uncertainty from the war in Iran and concerns about inflation.

The Dow and the S&P 500 fell to the lowest since November, down 1.6% and 1.4% respectively. The tech-heavy Nasdaq lost 1.5%.

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Is inflation behind the affordability conundrum?

Andrea Riquier

Asked whether inflation is responsible for Americans’ challenges with affordability, Powell said he wasn’t sure.

Survey data suggests that people see big price increases, and even though there has been growth in wages, it will take more time before people feel good enough about positive real earnings to overcome their price concerns, he said.