Federal Reserve Faces Tough Decisions Amid Iran War and Economic Uncertainty

Central bank may signal no interest rate cuts this year as inflation and unemployment concerns rise

Mar. 18, 2026 at 11:24am

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The Federal Reserve is facing a difficult policy decision as it wraps up its two-day meeting on Wednesday. With the Iran war sending oil and gas prices higher, the central bank must weigh the impact on inflation and economic growth. Policymakers may have to forgo planned interest rate cuts this year and leave rates unchanged, a major shift from their previous projections. The Fed will also have to update its economic forecasts, likely raising inflation projections while also anticipating higher unemployment later in 2026 due to the economic fallout from the conflict.

Why it matters

The Federal Reserve's policy decisions have far-reaching impacts on the broader economy, affecting consumer spending, business investment, and employment. Its actions during this period of heightened uncertainty will be closely watched, as the central bank tries to strike the right balance between fighting inflation and supporting economic growth.

The details

Fed Chair Jerome Powell is expected to announce that the central bank has kept its key interest rate unchanged at around 3.6% for the second straight meeting. However, the Fed's quarterly economic projections could show a shift, with policymakers potentially removing a forecast for one rate cut this year. This would mark a significant course correction after 18 months of intermittent rate cuts. The Fed will also have to raise its inflation forecast, with many economists expecting it to remain as high as 3% by late 2026, making further rate cuts harder to justify. At the same time, the jump in gas prices could slow the economy, leading to higher unemployment later this year.

  • The Federal Reserve's two-day meeting ends on Wednesday, March 18, 2026.
  • The Fed's current key interest rate is around 3.6%.
  • The U.S. launched the Iran war on February 28, 2026, sending gas prices soaring.

The players

Jerome Powell

The current Chair of the Federal Reserve, whose term is set to end on May 15, 2026.

Kevin Warsh

A former top Fed official who has been nominated by President Donald Trump to replace Jerome Powell as the next Fed Chair, though the nomination has been delayed due to a Justice Department investigation.

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What’s next

The judge in the Justice Department's investigation of Fed Chair Jerome Powell is expected to rule on the subpoenas issued to the Fed. If the subpoenas are upheld, it could further delay the confirmation of Kevin Warsh as the next Fed Chair.

The takeaway

The Federal Reserve faces a delicate balancing act as it tries to navigate the economic fallout from the Iran war. Its policy decisions will have significant implications for inflation, employment, and the broader economy in the months ahead.