The US Federal Reserve is set to announce its interest rate and monetary policy decision on Wednesday, March 18, after a two-day Federal Open Market Committee (FOMC) meeting amid the ongoing geopolitical tensions with Iran. The upcoming interest rate verdict will be the second last policy review for Jerome Powell before his term as Fed Chairman ends on May 15, 2026. The Federal Open Market Committee (FOMC) had cut the federal funds rate by a quarter-point twice last year to 3.75%-4.00%.
However, the US-Israel-Iran war, now in its third week running, has roiled the policy outlook for US Fed policymakers. The war, that has stranded a fifth of global oil supply, has triggered fresh signs of labor weakness for the US economy. Crude oil-driven inflation concerns are cornering Powell-led rate-setting panel into an uncomfortable choice — leave the benchmark borrowing costs steady to ensure that inflation does not worsen or decrease them to shore up a job market that is losing ground.
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According to most market analysts, US Fed policymakers are more likely to strike a cautious if not an outright hawkish tone this week. US inflation is mired about a percentage point above the central bank's target and is poised to move higher, particularly if oil prices that jumped almost 50% in two weeks remain elevated. Amid the high risk premium due to the Iran war, US Fed will have to weigh whether the developing economic shock and higher consumer prices results in tighter financial conditions.
High stakes for Powell amid Iran war-led risk test
The intense US and Israeli airstrikes and Iranian counterattacks have all but closed the strategic Strait of Hormuz. It provides the only sea passage from the Persian Gulf to the open ocean and is one of the world's most strategically important choke pointsEven at this point, President Donald Trump has set out no clear set of objectives or timeline for ending the war.
The US central bank will draft a policy outlook while balancing the current dynamics of a waging geopolitical war, rising commodity costs and weaker hiring. This has put the Fed in a "stagflation" phase that policymakers last year had thought they could avoid. The FOMC is expected to hold interest rates steady at its policy meeting on Wednesday, as per global market experts.
Tomorrow at 2:30 p.m. ET: Chair Powell hosts live #FOMC press conference: https://t.co/fXt6ew8I9A pic.twitter.com/TOYCoDvHq4
— Federal Reserve (@federalreserve) March 17, 2026
Wall Street traders have ramped up bets that rate cuts will start in June. The stakes are high for Fed chair Jerome Powell as faces a litmus test amid the current external risks due to the Iran war-led impact to the economy. Additionally, Powell will deliver his second-last policy review verdict as the Fed chair before the April meeting. US Fed is transitioning to a new leader, Kevin Warsh, nominated by Trump and expected to eventually win Senate confirmation to take over from Powell after mid-May. The June FOMC meeting could be Warsh's first as Fed chief if he is confirmed by the US Senate in time.
Cut Or Hold? What will majority vote among US Fed officials?
On Wednesday, US Fed will unveil new economic projections, marking a prediction whether their firm stand against inflation with a continued tight monetary policy will play out this year or rate cuts will be needed to offset an economic slowdown. Given the current uncertainty, Wall Street economists believe that the easiest approach now may be to stay close to December's monetary policy outlook, which showed a median forecast of just one rate cut this year.
US Fed Policy: Officials will weigh in a rate cut or hold amid the ongoing Iran war.
Photo Credit: Echion/US Fed
''The US Federal Reserve is widely expected to keep its policy rate unchanged at 3.50%-3.75% for a second consecutive meeting. However, investors will closely monitor Fed Chair Jerome Powell's guidance on future interest rate cuts. Rising energy prices could push inflation higher, complicating the Fed's policy outlook. Currently, markets expect only one rate cut by the end of the year, as geopolitical tensions increase economic uncertainty,'' said Jigar Trivedi, Senior Research Analyst at Indusind Securities.
FOMC's January minutes of the meeting showed several policymakers were ready to open the door to rate hikes this year, "reflecting the possibility that upward adjustments to the target range for the federal funds rate could be appropriate if inflation remains at above-target levels." However, US inflation concerns have only raised higher, while worries about growth and the economy's breaking point may also intensify — which presents a worst of both worlds for central bankers.
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