When it comes to the benchmark federal funds rate, we’re all in.
That’s because it guides interest rates for auto and student loans, home-equity loans and credit cards.
It also impacts the 10-year Treasury bond, which in turn affects mortgage rates in the stagnant housing market.
Billions of dollars in taxpayer money — primarily from individual tax returns and payroll taxes — pay the interest on the nation’s $38.9 trillion debt.
For consumers, a delayed rate cut could mean higher borrowing costs during an affordability crisis, sending many Americans scrambling to pay energy, grocery, shelter, and health care bills in a “low-hire, low-fire” labor market.
Against the fog of the Iran attacks, increasing inflation expectations, labor market concerns, and stagflation fears, the Federal Reserve is widely expected to hold the funds rate steady at its policymaking meeting this week.
That pause comes with no surprise, although some dovish Fed watchers including President Donald Trump want to see an immediate aggressive easing of monetary policy and lower interest rates.
The status of future rate cuts in 2026 is a looming concern for Main Street, Wall Street and Washington, D.C.
The Federal Open Market Committee will report its widely anticipated Summary of Economic Projections(SEP) on March 18, providing a blueprint for how officials are interpreting the Iran War’s effects on inflation in the short, medium, and long term.
Economists and market analysts have dramatically adjusted their forecasts in the last three weeks, with some now doubting the Fed will cut rates at all in 2026.
Fed’s dual mandate focuses on prices, jobs
The Fed’s dual congressional mandate requires it to balance full employment and price stability.
- Lower interest rates support hiring but can fuel inflation.
- Higher rates cool prices but can weaken the job market.
The two goals often conflict, operate on different timelines, and are influenced by unpredictable global events such as pandemics and wars.
Federal Reserve Bank of New York via FRED®
Fed paused rate cuts in January
The FOMC voted 10-2 to hold interest rates steady at 3.50% to 3.75% in January after three consecutive quarter-point cuts in its last three meetings of 2025.
Those cuts were based on data showing increasing weakening in the labor market and cooling inflation, although still sticky and tariff-laced.
More Federal Reserve:
- Fed Chair Powell sends frustrating message on future interest-rate cuts
It was the FOMC’s first pause since July 2025.
The Fed uses government and private data sources to drive monetary policy decisions, a rear-view mirror approach often criticized as being too restrictive.
Those critics, including Treasury Secretary Scott Bessent and former Fed Governor Kevin Warsh, Trump’s nominee to be the next Fed chair, advocate use of more advanced models including AI to set interest rates.
What the SEP measures for interest-rate forecasts
The SEP is a quarterly report from all 19 Fed officials, including the 12 voting members of the FOMC.
It measures several key economic variables including:
- Real Gross Domestic Product Growth. Recently revised GDP came in at 0.7% for Q4 2025, a sharp slowdown from 4.4% growth in Q3 2025.
- Unemployment Rate. This was recently reported higher than expected at 4.4%, following a disappointing February payroll report.
- Inflation. Includes both projections for Personal Consumption Expenditures (PCE) inflation and core PCE inflation excluding food and energy. January PCE came in at 2.9% year over year, above the Fed’s 2% annual target.
“It basically shows that inflation firmed up to start the year,” Omair Sharif, founder of the research firm Inflation Insights, told The New York Times March 13. “All the key measures are moving in the wrong direction.”
Fed faced risks to both sides of its mandate prior to Iran war
Even before the Iran attacks, the Fed faced a dilemma from worrisome risks to both sides of its congressional mandate: jobs and inflation.
Prior to the release of the latest inflation and GDP figures for January and February, Fed officials displayed a divisive outlook on 2026 interest-rate cuts.
- Some top Fed officials, including Cleveland Fed President Beth Hammack, said the annual rate of inflation is still too high to support cutting rates in the short term.
- Chicago Fed President Austan Goolsbee said additional rate cuts are possible this year if inflation eases.
- Fed Governor Stephen Miran called for four quarter-point cuts in 2026 to support the labor market and stimulate productivity.
- Fed Governor Christopher Waller cited risks to both sides of the Fed’s mandate and said it would be a “coin toss” as to whether he would vote for a rate pause this month.
Related: Traders revamp Fed rate-cut bets as jobs dip, oil rises
President Trump continued to criticize the Fed and Powell for not lowering rates to 1% or lower.
“Where is the Federal Reserve Chairman, Jerome ‘Too Late’ Powell, today?” he posted March 12 on TruthSocial. “He should be dropping Interest Rates, IMMEDIATELY, not waiting for the next meeting!”
Experts revise 2026 rate-cut outlooks
Traders fear the instability in Iran will drive up inflation and drag down the job market, threatening both sides of the Fed’s mandate.
The CME Group FedWatch tool moved the probability of a quarter-point cut to December from June, where it stood just a month ago.
- Goldman Sachs has pushed back its forecast for the central bank’s rate cuts, and now expects quarter-point cuts in September and December, citing rising inflation risks linked to the Iran war. Goldman previously projected the easing cycle to begin in June, followed by another reduction in September.
- Barclays also pushed its first cut projection to September, expecting a single quarter-point reduction for the entire year, down from estimates of multiple cuts.
- Morgan Stanley Chief U.S. Economist Michael Gapen stated that while the Fed will likely “look through” temporary energy price shocks, risks are now skewed toward cuts arriving later — and being larger — if economic activity weakens.
- High Frequency Economics Chief Economist Carl Weinberg offered a more hawkish approach, saying the Fed should consider a rate hike at its March 17-18 meeting to push back oil-shock inflation rising — by his outlook — to 3.5% by summer.
How the oil shock hits home
The pain from the Iran war’s oil shock is not just at the gas pump for consumers.
(Although I am very glad I filled my nearly empty tank last week for $3.09 a gallon after seeing multiple gasoline stations in my suburban Boston hometown advertising $3.69 for regular gas today.)
Global oil disruptions in the supply chain could last for months, driving higher prices. The effect would show up in the following.
- Headline Consumer Price Index data immediately
- Core inflation indirectly via freight, airlines, and goods
- PCE data, which is the Fed’s preferred measure of price stability
- In the event of a sustained stock-market hit, lower spending by high-earning households, which have been powering the K-shaped economy in recent years
“The Middle East conflict is likely to leave a visible mark on the U.S. economy through higher energy prices, tighter financial conditions, elevated private-sector uncertainty and renewed supply chain stress,” EY-Parthenon economists Gregory Daco and Lydia Boussour wrote in a note reported by Bloomberg March 13.
Related: Stunning court ruling resets bets for Warsh as next Fed chair
