The Federal Reserve on Wednesday left interest rates unchanged for its second straight meeting, ignoring President Donald Trump’s demands for cuts as the war with Iran has fueled a rise in the price of oil that threatens to reignite inflation.
“The implications of developments in the Middle East for the U.S. economy are uncertain,” the Federal Reserve said in a statement. Fed officials tentatively penciled in at least one rate cut later this year, though seven of the 19 meeting participants signaled no additional cuts.
Just one Fed official, former White House economic adviser Stephen Miran, dissented, from Wednesday’s decision to hold rates steady.
The Fed cut rates three times at the end of 2025, with policymakers signaling patience as they watch whether inflation continues to cool. Now, the war threatens to pull the Fed in two directions: Rising oil prices could reignite inflation, complicating the central bank’s efforts to bring price growth to heel — while the broader economic uncertainty unleashed by the war could slow growth and nudge unemployment higher.
That tension puts the Fed’s dual mandate — for low and stable inflation along with plentiful jobs — potentially in direct conflict. The upshot: The Fed is likely to extend its wait-and-see approach, analysts say.
Fed policies influence what households and businesses pay for mortgages, credit cards and other loans, and investors are watching closely for guidance on the central bank’s next steps. Chair Jerome H. Powell is scheduled to speak at a news conference at 2:30 p.m. Eastern time, remarks that markets will scrutinize for any clues about the pace and scale of future cuts.
“The message will be the Fed is not rushing to judgment, sees the U.S. economy as resilient, but is mindful of risks to both sides of its mandate,” Krishna Guha of Evercore ISI said ahead of the meeting.
Rising energy and transportation costs are likely to intensify pressure on the Trump administration, which has made tackling high prices and affordability a central political goal. The Fed’s unwillingness to cut rates hands the White House a convenient target, even as economists say the central bank has little choice but to wait. A survey of 28 former Federal Reserve officials and staff members, conducted by Duke University this month, found that most of the former insiders believed the central bank would either need to keep rates steady or even raise them this year. Only a quarter of the 28 thought a rate cut would be appropriate.
“Where is the Federal Reserve Chairman, Jerome ‘Too Late’ Powell, today?” Trump wrote on his social media site last week. “He should be dropping interest rates, IMMEDIATELY, not waiting for the next meeting!”
Trump’s efforts to pressure the Fed extend beyond social media posts. He is seeking to fire Lisa Cook, a sitting Fed governor, though the Supreme Court signaled it will probably allow her to remain on the seven-member Fed board while she challenges the dismissal. Separately, the Justice Department launched a probe of Powell over testimony he gave in the summer related to a $2.5 billion renovation of the Fed’s Washington headquarters. A federal judge quashed a pair of subpoenas tied to the investigation last week, ruling the inquiry lacked merit. The Justice Department said it would appeal.
“A mountain of evidence suggests that the Government served these subpoenas on the Board to pressure its Chair into voting for lower interest rates or resigning,” Chief U.S. District Judge James E. Boasberg in D.C. wrote in the opinion.
While price pressures have cooled markedly since their 2022 peak, inflation has remained stubbornly elevated for five consecutive years. Economists say it is actually running closer to 3 percent — about a percentage point above the Federal Reserve’s preferred target.
Ahead of the meeting, many analysts said they anticipated just one additional rate cut later this year, followed by another cut sometime in 2027.
Fed officials may be worried about the effects of the Iran conflict, because a rapid rise in energy prices can raise fears among consumers of higher prices across the broader economy — a dynamic that, if left unchecked, can become self-fulfilling, economists say.
“Everyone is going to see inflation at the gas pump, and they’ll extrapolate from that to the general price level,” said Phillip Braun, a clinical professor of finance at the Kellogg School of Management at Northwestern University.
So far, longer-term inflation expectations have remained relatively stable. But the Fed is watching closely.
Those concerns are playing out against an uncomfortable backdrop: The Fed’s preferred benchmark for inflation showed that underlying inflation remained stubbornly high in January. It rose 2.8 percent over the prior year, a slight decline from December but still well above the Fed’s 2 percent target. More concerning to some economists is that the benchmark that strips out volatile food and energy prices — and is closely watched as a measure of underlying price trends — rose to 3.1 percent in January from 3.0 percent in December.
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