News
18/03/26
Fed holds target rate on Middle East oil surge: Update
Adds Powell comments, background. Houston, 18 March (Argus) — Federal Reserve
policymakers kept their target interest rate unchanged Wednesday, citing
uncertainty from "developments in the Middle East" prompted by the Iran war. The
Fed's Federal Open Market Committee (FOMC) kept the federal funds rate at
3.5-3.75pc in the second meeting of 2026, following quarter-point cuts in
September, October and December last year. "Uncertainty about the economic
outlook remains elevated," the FOMC said in its statement. "The implications of
developments in the Middle East for the US economy are uncertain." In its latest
median economic projections, released Wednesday, the Fed continued to pencil in
one quarter-point rate cut this year, unchanged from the prior projection in
December. Policymakers still see one more quarter-point cut in 2027. Still, the
Fed views its favorite measure of inflation rising to 2.7pc to end this year
from a prior forecast for 2.4pc. Policymakers see inflation falling to 2.2pc
next year. They see GDP growth ending the year up an annual 2.4pc from a prior
forecast of 2.3pc, with unemployment ending the year at 4.4pc, unchanged from
the prior forecast. Regarding the inflationary shock of the US-Iran war, Powell
said economists generally "look through energy shocks" and consider them
transitory. He said the longer-term progress in bringing inflation down to the
Fed's target of 2pc will be more accurately measured by how quickly the economy
navigates the one-time impacts of Trump's tariffs. Still, Powell, said the net
impact of the oil shock will "still be some downward pressure on spending and
employment and upward pressure on inflation." Overall, he said, regarding the
economy, "growth is solid, the inflation overshoot is mainly from goods
(inflation) and the tariffs. The unemployment rate is little changed, with
little growth in labor demand or supply," which he attributed largely to Trump's
crackdown on immigrants. Buffeted by Trump's on-again/off-again tariff wars that
make it harder for businesses to make long-term investment and hiring decisions,
wide-ranging cuts to the federal bureaucracy and mounting deficit spending, the
economy has shown clear signs of slowing. The US economy slowed to an annual
0.7pc pace in the fourth quarter of 2025, mostly on lower consumer and
government spending prompted by the partial shutdown. It was sharply lower than
the average 2.5pc pace in the first nine months of the year. Job growth slowed
to about 247,000 in 2025, down from an estimated 1.5mn in 2024, according to
Labor Department data. Powell, whose term in office expires on 15 May, said he
would stay on as a Fed chair until his successor, former Fed governor and Trump
nominee Kevin Warsh, is confirmed by the Senate. He added that he would also
stay on at the board of governors of the Fed until a Justice Department criminal
investigation into his congressional testimony regarding cost overruns at a Fed
building project is "well and truly over with transparency and finality." A
federal judge last week overturned Justice subpoenas related to the case, saying
the purpose of the probe was to pressure Powell to lower rates or step down
before his time in office expires in May. Justice has appealed the ruling. By
Bob Willis Send comments and request more information at feedback@argusmedia.com
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