The US Federal Reserve has kept interest rates unchanged as expected, in defiance of US President Donald Trump as the world's largest economy battles stubborn inflation, weak labour demand and an "uncertain" economic outlook due to the war in Iran.
The Fed's 11-1 vote kept rates steady at a range between 3.50% and 3.75%, with officials flagging one expected rate cut by the end of the year.
"The implications of developments in the Middle East for the US economy are uncertain," the Fed said in a statement.
There are no sure bets, and without a clear stopping point to the US-Israeli bombing campaign, economists say the domestic and global impacts hinge on how long the war continues, on the structure of whatever Iranian government emerges at the end of it, and whether oil prices rise further beyond $100 a barrel or recede soon to their pre-war levels below $80.
The average price of gasoline in the US was $3.79 per gallon as of yesterday, more than 25% higher than before the war, according to data from motorist advocacy group AAA.
A variety of other prices could rise in turn - airlines have begun warning of rising travel costs as the price of jet fuel surges, and a White House official said the US was seeking other sources of agricultural fertilisers.
Today the Fed also raised the outlook for its preferred inflation gauge to 2.7% by the end of 2026, with expected price shocks due to the war in Iran.
In its Summary of Economic Projections, the Fed lifted its expectations for headline PCE inflation to 2.7% from 2.4%.
Its expectation for core inflation, which excludes volatile segments, rose from 2.5% to 2.7%.
As US consumers cope with higher oil-related prices, they may cancel purchases or try to scale back spending altogether, while US trading partners in Europe face an even sharper inflation shock.
The Iran war marks the second potentially stagflationary shock Trump has delivered to the Fed's outlook, with central bankers a year ago also viewing the new administration's tariff proposals as a blow to both growth and prices.
While the initial impact of the import duties was not as severe as expected, businesses said they were still in the process of passing higher costs along, a fact that already had officials at the Fed's January 27-28 meeting discussing the possible need for rate hikes instead of cuts.
The new policy statement will be closely read for suggestions that Fed policy is now "two-sided," with the next change in rates potentially a rate increase.
Data since the Fed's last meeting, even before it was overtaken by the outbreak of war, was already moving in a difficult direction for the central bank. Inflation showed little progress of returning towards the Fed's 2% target, and economists now expect it to remain above that level by a percentage point or more in the coming months - high enough, and persistent enough, that some policymakers will worry that rate cuts would send the wrong signal about their commitment to tame rising prices.
The US employment report for February, meanwhile, showed the economy lost 92,000 jobs.
Investors and analysts for now have scaled back their expectations for steady Fed rate cuts this year, even with Trump continuing to call for lower borrowing costs and Kevin Warsh, the president's nominee to replace Powell as Fed chief, expected to be in place by the June 16-17 meeting.
Futures markets now see the Fed delivering only one quarter-percentage-point rate cut this year, in September, and another cut in late 2027, a pace and level out of step with what Trump has advocated.
