Federal Reserve Faces Tough Decisions Amid Iran War

Central bank may signal no interest rate cuts this year due to rising inflation and unemployment

Mar. 18, 2026 at 9:18am

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The Federal Reserve is facing a difficult decision as it meets this week, with the Iran war sending oil and gas prices soaring and creating uncertainty around the economic outlook. The central bank must weigh rising inflation against the potential for higher unemployment, and may have to forgo planned interest rate cuts this year as a result.

Why it matters

The Fed's decision on interest rates will have significant implications for consumers, businesses, and the broader economy. Higher interest rates could slow economic growth, but failing to raise rates enough to combat inflation could also be detrimental. The central bank is navigating a challenging environment with competing economic pressures.

The details

The Fed is almost certain to keep its key interest rate unchanged at around 3.6% for the second straight meeting. However, the central bank may alter its forecast to signal no rate cuts this year, a major shift from its previous projections. This change would be driven by rising inflation, which the Fed now expects to remain as high as 3% by late 2026 due to the impact of the Iran war. At the same time, higher gas prices could slow consumer spending and lead to higher unemployment later this year.

  • The Fed's two-day meeting ends on Wednesday, March 18, 2026.
  • The Iran war began on February 28, 2026, sending gas prices soaring.
  • In January 2026, inflation excluding food and energy reached 3.1% compared to a year earlier.
  • In February 2026, businesses shed 92,000 jobs, an unexpectedly weak showing.

The players

Jerome Powell

Chair of the Federal Reserve.

Kevin Warsh

Former top Fed official who has been nominated by President Donald Trump to replace Powell as Fed chair.

Jeannine Pirro

U.S. Attorney who has said she will appeal a judge's ruling that threw out subpoenas issued by the Justice Department to the Fed as part of an investigation into Powell's testimony about a building renovation.

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What’s next

The judge's ruling on the Justice Department's subpoenas is expected to be appealed by U.S. Attorney Jeannine Pirro, which could impact the timeline for confirming a new Fed chair to replace Jerome Powell.

The takeaway

The Federal Reserve faces a delicate balancing act as it tries to navigate the economic fallout from the Iran war. Raising interest rates to combat inflation could slow growth, but failing to do so risks letting price pressures spiral. The central bank's decision will have far-reaching consequences for consumers, businesses, and the broader economy.