The Fed Will Almost Certainly Hold At Its Meeting Next Week-Here's What's Still Up In The Air

Key Takeaways

• The Federal Reserve is widely expected to keep its key interest rate in a range of 3.5% to 3.75% at the conclusion of its two-day meeting on Wednesday.
• Policymakers will release their quarterly economic projections, revealing how they expect inflation, economic growth, and other economic metrics to play out in the wake of the Iran war.
• The Fed is caught between the need to keep rates higher for longer to stamp out inflation and lowering them to encourage spending and help the job market.

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The Federal Reserve policymakers are nearly certain to keep their key interest rate unchanged when they decide on monetary policy next week, with the real question being how officials are thinking about the Iran war and its effects on inflation.

The Federal Open Market Committee is widely expected to keep the federal funds rate at its current range of 3.5% to 3.75% when it concludes its two-day policy meeting on Wednesday. That would be the second meeting in a row the central bank has kept the rate flat, after cutting it by a quarter-point at each of its last three meetings of 2025 to lower borrowing costs on all kinds of loans and boost the faltering job market.

Financial markets are pricing in more than a 99% chance the Fed will keep policy flat, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data.

What This Means For The Economy

The Fed has become less likely to cut interest rates later this year, as the Iran war has pushed up gas prices and raised concerns about a broader wave of inflation.

Less predictable is the set of economic projections policymakers will release alongside the decision, showing their forecasts for inflation, unemployment, and how they expect to change the Fed funds rate at future meetings. Those projections, along with Fed Chair Jerome Powell’s post-meeting press conference, could shed light on whether the central bank will cut interest rates at all this year,

Markets have pushed back their expectations for rate cuts this year, and now consider a rate cut in October the most likely scenario, versus last month, when the first cut was projected for June. Traders fear the war in Iran will drive up inflation and drag down the job market, threatening both sides of the Fed’s dual mandate from Congress: to keep inflation low and employment high.

Economists said the Fed would be reluctant to make any moves in response to the conflict, given the vast uncertainties about how long it will last and how high energy prices will ultimately rise as a result of the war’s disruption of oil supplies. Fed officials’ projections will most likely acknowledge the fact that the war is likely to push up inflation, at least in the short run, economists at Deutsche Bank led by chief economist Matthew Luzzetti, wrote in a commentary.

Related Education

Federal Funds Rate: What It Is, How It’s Determined, and Why It’s Important

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“The Summary of Economic Projections (SEP) should be little changed, except for upward revisions to headline and core PCE inflation for this year,” they wrote.

Even before the outbreak of war, the Fed faced a dilemma of whether to keep interest rates higher for longer to discourage borrowing and spending and quell inflation still stubbornly above its target of a 2% annual rate, or lower rates to encourage spending and hiring after the job market slowed down significantly in 2025, raising concerns about a severe increase in unemployment.

The Fed also faces intensifying political pressure. President Donald Trump renewed his repeated demands this week for the Fed to sharply cut interest rates, a stance the Fed has resisted amid concern that lower rates could stoke inflation.

“Where is the Federal Reserve Chairman, Jerome ‘Too Late’ Powell, today?” Trump posted on his Truth Social platform this week. “He should be dropping Interest Rates, IMMEDIATELY, not waiting for the next meeting!”

Trump’s point of view may have more leverage after May, when Powell’s term as Fed chair expires and Trump’s selection, Kevin Warsh, takes over as the central bank’s board leader. Warsh has recently called for rate cuts, but it is not guaranteed to prevail, since he must convince the majority of the 12-person FOMC to vote for any rate movements.

Furthermore, Warsh’s taking his appointed spot is still subject to Senate approval, where at least one powerful Republican lawmaker has vowed to block his nomination in protest of the Justice Department’s investigation of the Fed and Powell.

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