Powell: Fed will “wait and see” as Iran war raises inflation risks
Fed Chair Jerome Powell told audiences and reporters the central bank is monitoring whether a geopolitically driven oil shock will lift inflation expectations and force policy changes. The FOMC held rates at 3.5%–3.75% and raised its near-term inflation outlook, leaving rate moves conditional on how long energy-price pressures persist.
Apr 3, 2026, 1:35 PM EDT
Why it matters:
- A war-driven jump in oil and gasoline prices risks re-anchoring U.S. inflation expectations, which could force the Fed to shift from a hold stance to tighter policy and push borrowing costs higher for households and businesses.
Driving the news:
- The Fed kept its federal funds target at 3.50%–3.75% while flagging an "uncertain" outlook tied to the Iran war and energy prices.
- Policymakers raised their inflation forecast for year-end 2026 — the Fed now sees PCE at about 2.7% vs. an earlier 2.4% — and said they will "wait and see" how the shock plays out.
The big picture:
- The U.S.-Israel conflict with Iran has widened into the Gulf region and pushed Brent futures above $100 a barrel at times, creating a supply shock that feeds through fuel and shipping costs.
- Short-lived shocks are often looked through by the Fed, but a string of persistent energy-price shocks can raise long-term inflation expectations and complicate the central bank's 2% goal.
By the numbers:
- Federal funds target range: 3.50%–3.75%.
- Fed's PCE inflation forecast for Dec. 2026: ~2.7% (up from 2.4%).
- Core PCE has recently trended higher, roughly 3.1% annualized over the past three months, tightening the room for easy policy moves.
What they're saying:
- "You have to carefully monitor inflation expectations," Powell said, stressing the risk that repeated supply shocks could leave inflation persistently higher.
- Other Fed officials warned the conflict could complicate returns to 2% inflation; some former regional Fed presidents said the uncertainty could keep rates on hold longer.
What to watch:
- Oil and gasoline price paths over the next weeks — a sustained spike would increase upside inflation risk and pressure the Fed to act.
- Incoming CPI/PCE releases and the Fed's next dot-plot updates for signs of shifting expectations or stronger inflation momentum.
- Powell’s continued role through an ongoing investigation and the timing of any leadership change at the Fed, which could alter policy direction.
The bottom line:
- The Fed is positioned to hold for now, but a persistent energy shock that raises inflation expectations could force policymakers to tighten later.