The Fed left its key rate unchanged on Wednesday for a second consecutive meeting, holding it at about 3.6%. In a statement, the central bank said the “implications of developments in the Middle East for the US economy are uncertain”.
Policymakers expect the Iran war will worsen inflation this year while having little impact on growth, but they still expect to cut their key rate once in 2026.
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.
The officials expect inflation to fall back to 2.2% in 2027 and hit the Fed’s 2% target in 2028.
Inflation is now expected to end this year at 2.7%, up from the previous forecast. Core inflation, which excludes food and energy, is also projected at 2.7%.
Officials said higher petrol prices are likely to push inflation up in the coming months, but those increases could reverse if the conflict eases.
The Fed also expects that the war will have no sustained impact on growth or unemployment. Officials still see the unemployment rate at 4.4% at the end of this year, the same as it is now.
And they project the economy will grow 2.4% this year, up slightly from a 2.3% forecast in December.