Ahmed Kamel – Egypt Daily News
The Federal Reserve kept interest rates unchanged on Wednesday, marking its first policy decision since the outbreak of the Iran war sent oil prices sharply higher and raised fresh concerns about inflation in the United States.
The decision, which matched market expectations, leaves the benchmark interest rate in a range between 3.5 percent and 3.75 percent. It also represents the second consecutive pause in 2026, following three straight rate cuts late last year.
In a statement, the Federal Open Market Committee (FOMC) said the economic outlook has become increasingly uncertain due to geopolitical developments. “The implications of developments in the Middle East for the U.S. economy are uncertain,” the committee noted, highlighting the growing impact of the conflict on global markets.
Financial markets reacted negatively to the announcement. The Dow Jones Industrial Average fell 768 points, or 1.6 percent, while the S&P 500 declined 1.3 percent and the Nasdaq Composite dropped 1.4 percent, extending losses amid investor anxiety over inflation and slowing growth.
The Fed signaled a cautious path ahead, projecting one quarter-point rate cut later in 2026 and another in 2027. The 12-member committee voted 11-1 to hold rates steady, with Stephen Miran casting the lone dissent in favor of an immediate rate cut.
Fed Chair Jerome Powell said recent inflation data has been influenced by rising goods prices, partly driven by tariffs and exacerbated by higher energy costs. He noted that inflation expectations have increased in recent weeks, largely reflecting the surge in oil prices caused by supply disruptions linked to the Middle East conflict.
Inflation stood at 2.8 percent in February, according to the Fed’s preferred measure, remaining above the central bank’s 2 percent target. At the same time, economic growth has shown signs of weakening, raising fears of stagflation a challenging combination of rising prices and slowing economic activity.
Recent data has underscored those concerns. The U.S. economy lost 92,000 jobs in February, reversing earlier gains, while the unemployment rate edged up to 4.4 percent. Meanwhile, economic growth slowed to an annualized rate of 0.7 percent in the final quarter of 2025.
The war in Iran has intensified these pressures. U.S. crude oil prices climbed to around $97 per barrel, representing a surge of more than 50 percent in just one month. Gasoline prices have also risen sharply, increasing by 86 cents to an average of $3.84 per gallon, according to industry data.
The Fed now faces a difficult balancing act. Lowering interest rates could support growth but risk fueling inflation further, while raising rates could help contain price increases at the cost of slowing the economy even more.
The rate decision also comes amid political tensions in Washington. A recent ruling by U.S. District Judge James Boasberg blocked Justice Department subpoenas targeting the Fed’s Board of Governors, citing a lack of evidence and raising concerns about potential political pressure on the central bank. Acting U.S. Attorney Jeanine Pirro criticized the ruling and said it would be appealed.
As the conflict in the Middle East continues to disrupt energy markets and weigh on global growth, the Fed’s decision underscores the growing challenge facing policymakers as they navigate an increasingly uncertain economic landscape.
