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By Gabe Whisnant
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Rising gasoline prices tied to the war involving Iran are complicating the Federal Reserve’s inflation fight, even as signs of a cooling job market strengthen the case for eventually lowering borrowing costs. Policymakers are trying to avoid repeating the early-pandemic mistake of dismissing inflation as temporary, while also acknowledging that energy shocks often fade without the central bank needing to respond.
That tension was on display Wednesday as the Fed wrapped up a two-day meeting with a decision to keep rates steady and fresh forecasts showing officials still expect inflation to cool over time. Fed Chair Jerome Powell told reporters the near-term effect of higher oil and gas prices will be to lift inflation, but he emphasized that it remains too soon to know how the conflict will affect growth and hiring.
“The U.S. economy has been doing really well through a lot of challenges,” Powell said. “It’s been amazing to see.”
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Markets and consumers are watching closely because fuel prices have surged. AAA’s daily tracker put the national average for regular gasoline at $3.842 a gallon on March 18, up from $2.923 a month earlier — an increase of about 92 cents.
The meeting also unfolded as political pressure on the Fed intensifies ahead of a leadership transition. Powell’s term as chair ends May 15, and President Donald Trump has nominated former Fed official Kevin Warsh to replace him, a process that has been slowed by Senate disputes tied to a Justice Department investigation and related subpoenas that a federal judge has already quashed.
What was the Federal Reserve’s Interest Rate Decision Today?
The Federal Reserve left its key policy rate unchanged for a second straight meeting, maintaining the federal funds rate in a target range of 3.5 percent to 3.75 percent. In its post-meeting statement, the central bank said the “implications of developments in the Middle East for the U.S. economy are uncertain,” as policymakers weighed the inflation risks of higher energy prices against softer signals in the labor market.
In updated forecasts, Fed officials projected inflation of 2.7 percent by the end of this year and also projected core inflation — which excludes food and energy — at 2.7 percent, a step up from their earlier expectations. Those projections suggest officials expect headline inflation to be pushed higher in the near term by gasoline prices, while underlying inflation cools more slowly.
One governor, Stephen Miran, dissented in favor of cutting rates by a quarter point. Miran is a Trump appointee who took office on September 16, 2025, according to the Federal Reserve Board’s biography page.
How Does the War in Iran Factor into the Federal Reserve’s Interest Rate Decisions?
The Fed is treating the Iran war primarily as an inflation risk because it has driven oil and gasoline prices higher. Powell said the immediate effect of higher oil and gas prices is likely to elevate inflation, but he stressed the broader impact is uncertain.
“The thing I really want to emphasize is, nobody knows,” Powell said, referring to the impact of the Iran war. “The economic effects could be bigger, they could be smaller, they could be much smaller, they could be much bigger. We just don't know.”
The size and duration of the energy shock will matter. AAA data shows the national average for regular gasoline at $3.842 a gallon on March 18, up from $2.923 a month earlier. Such increases can lift headline inflation quickly, even if core inflation is less affected because it excludes energy.
At the same time, the Fed is trying to avoid repeating the “transitory” error from the post-pandemic inflation surge. Policymakers are already dealing with inflation that remains above target: the Commerce Department’s January PCE report showed core PCE inflation running at 3.1 percent from a year earlier, above the Fed’s 2 percent goal.
The Fed is also watching a labor market that has shown new signs of strain. The Bureau of Labor Statistics reported that total nonfarm payroll employment edged down by 92,000 in February and that the unemployment rate was 4.4 percent. A weaker labor market would normally strengthen the case for rate cuts — but persistent inflation and higher energy costs make the policy balance harder.
Finally, the Fed’s decision-making is unfolding amid an unusually charged political backdrop. A federal judge quashed Justice Department subpoenas related to a probe involving Powell, calling the subpoenas a pretext to pressure the Fed, while the dispute has also complicated the Senate path for Warsh’s nomination.
Powell said he has “no intention” of leaving the central bank until an investigation into his congressional testimony about the Fed’s building renovation is dropped.
When are the Next Federal Reserve Meetings in 2026?
The Federal Open Market Committee’s remaining scheduled meetings in 2026 are April 28–29, June 16–17, July 28–29, Sept. 15–16, Oct. 27–28 and Dec. 8–9, according to the committee’s published schedule. The Fed typically announces its rate decision at 2 p.m. ET on the second day of each meeting, and some meetings include updated economic projections and a press conference.
The next policy checkpoint will be the April meeting, but the June meeting is the next one that appears on the Federal Reserve Board’s event calendar as a two‑day meeting with a scheduled press conference. Markets will be watching whether inflation data and energy prices begin to cool, and whether the labor market weakens further, as those factors will shape whether the Fed can move from holding rates steady to cutting later in the year.
Updates: 3/18/26, 6:42 p.m. ET: This article was updated with new information and remarks.
This article includes reporting by the Associated Press.
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