Update: Fed Leaves Interest Rates, Policy Outlook Unchanged Amid Iran War Uncertainty

03:14 PM EDT, 03/18/2026 (MT Newswires) -- (Updates with the Summary of Economic Projections and comments from Oxford Economics.)

The Federal Reserve kept its monetary policy steady amid uncertainty around the ongoing Middle East conflict, and left its interest rate guidance unchanged despite upgrading inflation estimates.

The central bank's Federal Open Market Committee left interest rates unchanged in a range of 3.50% to 3.75%, in line with Wall Street's expectations and marking its second consecutive pause. Last year, the FOMC delivered three back-to-back 25-basis-point cuts amid concerns about the labor market.

"The implications of developments in the Middle East for the US economy are uncertain," the FOMC said Wednesday following its two-day meeting.

Several Gulf countries have been impacted by the US-Israel war with Iran that started at the end of last month. The crucial Strait of Hormuz remains effectively closed, disrupting energy supplies and triggering inflation concerns.

The FOMC's Summary of Economic Projections continued to show the median federal funds rate at 3.4% at the end of 2026, unchanged from December and indicating potential policy easing this year. The 2027 and 2028 rate outlooks were also maintained at 3.1% each.

Policymakers, however, raised their headline and core inflation projections, as measured by personal consumption expenditures, to 2.7% each for this year, up from December's estimates of 2.4% and 2.5%, respectively. Their 2027 projections for both metrics increased to 2.2% from 2.1%. Core inflation excludes the volatile food and energy components.

The unemployment rate this year is still seen at 4.4%, though the 2027 outlook rose to 4.3% from 4.2%, the Summary of Economic Projections document showed.

"Assuming inflation expectations remain stable, Fed officials are likely to look through a one-time boost in inflation and focus on the downside risks to the labor market," Oxford Economics Chief US Economist Michael Pearce said in remarks e-mailed to MT Newswires. "Labor market conditions are far weaker, supply chains less stressed, and housing inflation far lower than during the previous energy price shock in 2022, meaning second round effects will be more contained."

Oxford Economics continues to expect cut rates in June and September, "in contrast to recent market pricing," Pearce said.

Fed officials upgraded their annual economic growth views through 2028, seeing gross domestic product growth at 2.4% this year.

The FOMC reiterated that job gains in the US remained low, while inflation continues to be "somewhat elevated." The unemployment rate has been "little changed" in recent months, the committee said Wednesday, compared with its remarks in January that the rate had shown some signs of stabilization.

Earlier in the day, official data showed that US producer prices rose at the fastest pace in seven months in February amid notable spikes in wholesale costs of food and energy. Last week, a government report showed that annual consumer inflation held steady last month.

Earlier this month, government data showed that US employment unexpectedly fell in February and the jobless rate ticked higher to 4.4%.

Fed Governor Stephen Miran dissented from the majority at the latest meeting, preferring to reduce rates by a quarter percentage point, the FOMC said Wednesday.

"In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the committee will carefully assess incoming data, the evolving outlook, and the balance of risks," the FOMC said, reiterating its previous stance.

Policymakers' next meeting is scheduled for April 28-29.

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