(AP) - Federal Reserve officials expect the Iran war will worsen inflation this year while having little impact on economic growth, but they still expect to cut their key rate once in 2026.
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, Fed Chair Jerome Powell maintained a largely optimistic outlook, pointing out that in recent years the economy has been hit with numerous shocks — tariffs, the Fed’s own rate hikes in 2022 and 2023, the aftermath of the pandemic — and has avoided recession all along.
By Christopher Rugaber
March 18, 2026
