The Fed Holds Reference Interest Rate Steady, Mitigating Inflation from Middle East Conflict?

WASHINGTON, KOMPAS.com - The United States Federal Reserve, or The Fed, decided to maintain its benchmark interest rate steady on Wednesday (18 March 2026) local time.

This is because policymakers are attempting to address inflation figures higher than anticipated, mixed signals in the labour market, and the conflict in the Middle East.

In a decision that was widely anticipated, the Federal Open Market Committee (FOMC) voted 11-1 to keep the federal funds rate in the range of 3.5-3.75%.

This interest rate sets the overnight funding cost for banks but affects a wide range of consumer and business loans.

Despite rising uncertainty, officials again signalled that they still expect some rate reductions in the future.

The closely watched dot plot, which reflects projections from each member, shows one cut this year and another in 2027, although the timing is still unclear.

Of the 19 FOMC participants, seven signalled that they expect rates to remain unchanged this year, one more than in the last update in December.

Although future years show a fairly wide spread of forecasts, the median outlook is for an additional cut in 2027 before the federal funds rate stabilises around 3.1% in the long term.

The statement affirmed that the implications of developments in the Middle East for the US economy remain uncertain.

Federal Reserve Chair Jerome Powell explained that it is still too early to know the impact of that war.

“Short-term inflation expectations indicators have increased in recent weeks, likely reflecting the significant rise in oil prices caused by supply disruptions in the Middle East,” he said, quoted from CNBC, Thursday (19 February 2026).