The Fed Holds Interest Rates Amid Iran War and Donald Trump's Political Pressure
The US central bank, the Federal Reserve (The Fed), has officially decided to maintain its benchmark interest rate at the policy meeting on Wednesday (18 March 2026). This decision was taken as policymakers navigate an economy squeezed between high inflation, fluctuating labour market conditions, and the outbreak of war with Iran.
The Federal Open Market Committee (FOMC) voted 11-1 to keep the interest rate in the range of 3.5% to 3.75%. Although holding rates steady, the latest “dot plot” indicates that Fed officials still project one rate cut this year and another in 2027.
The main factor overshadowing this decision is the war with Iran, which has been ongoing for three weeks. Disruptions in the Strait of Hormuz have shaken the global oil market and threaten the Fed’s 2% inflation target.
“The implications of developments in the Middle East for the US economy remain uncertain,” states the official FOMC statement.
Federal Reserve Chair Jerome Powell, in his press conference, stated that it is still too early to gauge the long-term impact of the conflict. “Short-term inflation expectations have risen in recent weeks, likely reflecting the substantial increase in oil prices caused by supply disruptions in the Middle East,” said Powell.
The Fed revised its US economic growth projection to 2.4% this year, slightly faster than the December forecast. However, inflation expectations have also increased to 2.7%. Central bank officials hope inflation will ease back to 2% as the effects of tariffs and the war subside in the future.
On the internal side, Governor Stephen Miran was the only one to dissent, proposing a 0.25% cut due to concerns over the employment climate.
This decision comes amid escalating political tensions. President Donald Trump continues to press Powell to lower interest rates to loosen the economy. Powell’s term ends in May, and Trump has nominated Kevin Warsh as his successor.
However, this leadership transition is hampered by legal disputes. US Attorney Jeanine Pirro has issued a subpoena to Powell regarding the renovation of the Fed headquarters building. Powell has rejected the demand and accused the move of being a political tactic to pressure him into cutting rates.
In response to speculation about his resignation, Powell affirmed his strong position. “I have no intention of leaving the board until the investigation is fully completed, with transparency and finality,” he asserted.
Powell also stated that he has not yet decided whether to remain on the Board of Governors after his term as Chair ends, given that his governor term only expires in early 2028.