For now, Fed policymakers left short-term interest rates unchanged Wednesday for the second straight meeting at about 3.6%. In a statement, the central bank said that the “implications of developments in the Middle East for the U.S. economy are uncertain.”
Still, by keeping their forecast for a rate cut this year and next — the same projections that they made in December — central bank policymakers appear to expect the gas price spike from the Iran war to have a largely temporary effect on inflation and the economy. Policymakers also foresee unemployment remaining unchanged by the end of this year, a more optimistic outlook than most outside economists.
Whether that turns out to be true will largely depend on the length of the conflict in the Middle East. The officials expect inflation to fall back to 2.2% in 2027 and hit the Fed’s 2% target in 2028.
Speaking to reporters after the rate decision was announced, Powell said that in the short-term, higher oil and gas prices will elevate inflation, but it is too soon to know the potential impacts on the economy.
“The U.S. economy is doing pretty well, it’s just we don’t know what the effects of this will be, and really no one does," Powell said.
