Fed Holds Rates Steady as Iran War Fuels Inflation Concerns

The U.S. Federal Reserve has kept interest rates unchanged for the second consecutive FOMC meeting, in line with expectations. This comes amid concerns of the inflationary pressure that the U.S. economy is currently facing due to the Iran war.

Fed Holds Rates Steady At FOMC Meeting

In a press release, the Fed announced it would maintain the target range for the federal funds rate at 3.50% to 3.75%. This decision comes in line with expectations, with market participants predicting a 99% chance that the Fed will keep rates unchanged.

11 of the 12 FOMC members voted in favor of this decision, with Fed Governor Stephen Miran the only dissent. Miran dissented in favor of a 25 basis points (bps) rate cut.

This decision comes as Fed officials noted that inflation remains elevated and trending way above their 2% target. “Available indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, and the unemployment rate has been little changed in recent months. Inflation remains somewhat elevated,” the release read.

Notably, the PPI report, which dropped today, showed that inflation rose to 3.4% in February, above estimates. Core PPI also rose to 3.9%, its highest level since February 2023.

The war in Iran also poses a concern for the Fed, as it could drive inflation, prompting the FOMC to hold rates steady for the foreseeable future. The Committee said that uncertainty about the economic outlook remains elevated and that the implications of the U.S.-Iran conflict for the U.S. economy are uncertain.

With the Fed holding rates again at this FOMC meeting, attention will now turn to Fed Chair Jerome Powell’s press conference for further guidance on the outlook for rate cuts this year. Powell is likely to touch on the Iran war and how it could lead to higher prices if the conflict drags on.

Fed Still Expects One Rate Cut This Year

The Fed’s dot plot from the December FOMC meeting shows the Committee still expecting one cut this year and another in 2027. This marks a positive, as market participants were pricing in the possibility that the Fed would lower its rate-cut projections for this year to zero amid inflation concerns.

However, it is worth noting that Fed officials are more widely split on rate-cut projections than they were in December. At the moment, seven participants expect zero cuts this year, seven expect one cut, two expect two cuts, two expect three cuts, and only one Fed official expects four cuts this year. For crypto traders, Fed rate cut hopes continue to fade amid the Iran war.

These traders have lowered their expectations for rate cuts this year, with the odds of zero cuts this year notably climbing to 25% on Polymarket over the past week. Furthermore, these traders do not expect any potential cut until the September FOMC meeting. co