US Fed Expected To Keep Rates Steady as Iran War Impact Looms

The U.S. Federal Reserve opened its two-day meeting on Tuesday with policymakers expected to keep interest rates unchanged as they digest weak economic data and gauge the economic effects of the Iran war.

The central bank's rate-setting Federal Open Market Committee (FOMC) began its gathering at 10:30 a.m. eastern time, a central bank spokesperson said.

The meeting comes as the Fed battles stubbornly high inflation and weak demand in the U.S. labor market, with its dual mandates potentially at odds with one another.

The U.S.-Israel war on Iran, launched on Feb. 28, is also expected to have major economic implications, with oil prices surging and supply chains disrupted.

Rising oil prices are expected to have knock-on global inflationary effects, including in the United States, where price increases have remained above the Fed's long-term 2% target for years.

U.S. average gasoline prices have increased around 27% since the start of the war, according to the AAA motor club's gauge.

Analysts have also warned of the conflict causing supply chain disruptions and oil shortages that will drag down economic growth.

Central banks tend to ignore the inflation effects of short-term price shocks, but it is unclear how long the war in Iran will drag on.

U.S. households have been battered by years of higher-than-expected inflation after the Covid pandemic.

In January, the Fed's preferred inflation gauge came in at 2.8%, with core inflation rising by 3.1%, its highest level since March 2024.

The U.S. labor market has also shown weakness in recent months, with unemployment ticking up in February due to weak labor demand.

Last week, there was more bad news, with new data showing the U.S. economy grew at a significantly slower pace than initially estimated for the final months of 2025.

The new data and outlook for effects of the Iran war have seen traders change their expectations of the Fed.

Before the war, a rate-cut was expected as soon as the summer, with another possible later in the year.

On Tuesday, CME's FedWatch tool showed expectations of just one rate cut by the end of the year, likely coming after September.

The Fed cut rates at three consecutive meetings late last year, but they remain above levels that U.S. President Donald Trump has demanded.

Trump has repeatedly insulted and criticized Fed Chair Jerome Powell and attempted to unseat another Fed Governor.

Last week, a Department of Justice investigation into Powell over cost overruns related to Fed building renovations ran into an obstacle when a federal judge quashed subpoenas in the case.

Powell's term as Fed chair ends in May, making this his penultimate meeting.

Trump has nominated Kevin Warsh to replace him, but he has yet to be confirmed by the Senate.

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