With the war in Iran in its third week and oil prices roughly 30% higher than a month ago, US Federal Reserve rate setters are gathering to decide on monetary policy.
It is widely expected that, amid heightened uncertainty, the FOMC will vote to hold interest rates within the 3.50–3.75% target range.
For many analysts, the concern around energy prices is less about how high and more about how long.
Barclays noted that the issue of “persistence” will be key for the central bank reaction. “The textbook policy prescription is for central banks to look through temporary supply shocks. However, with inflation expectations still elevated and potentially less firmly anchored after years of above-target price growth, central banks may not have that luxury if high energy prices persist and feed through to consumer inflation.”
Rate markets have already begun to reflect this risk, pricing out the likelihood of further cuts in the first half of the year. As Barclays’ Christian Keller observed, “across the major central banks, markets repriced policy rates higher this week.”
Updated forecasts
Source: Fed reserve Board, BofA Global Research
The Fed is set to update its summary of economic projections (SEP), with analysts primarily focused on potential revisions to the inflation outlook.
JPMorgan’s Michael Feroli suggested that clues can be drawn from the January minutes, which indicated upward revisions to both the economic path and consumer prices. “Between December and January, the staff revised its forecasts higher for both growth and inflation and thus sees the unemployment rate falling below its natural rate by the end of this year. Since then, we’ve had additional employment and inflation data, but the more significant factor for the outlook is the Middle East conflict.”
A poll showed economists broadly expecting both headline and core PCE inflation forecasts to be revised meaningfully higher for this year before easing over the remainder of the projection horizon.
On growth, views are more mixed. Feroli said, “While there has been conflicting data since [December], we think it is most likely that this year’s growth forecast will be revised down by a tenth or two.” He added that the longer-run GDP growth projection has remained at 1.8% since late 2020, though recent discussions point to greater optimism around supply-side dynamics.
In contrast, Barclays predicted a modest upward revision to 2026 GDP growth relative to December, citing stronger AI-related capital expenditure plans. “We do not think these changes will be sufficient to alter the FOMC’s median unemployment rate projections.”
In December, the median dot plot for end-2026 stood at 3.25–3.50%, effectively signalling just one rate cut over the year.
Barclays’ Pooja Sriram warned against talk of a shift in the rate outlook. “We think most participants will prefer to keep both rates and projections unchanged as they await greater clarity, particularly on how geopolitical developments affect oil prices, inflation and activity.”
Press conference: An exercise in fence sitting
Fed Chair Jerome Powell is expected to emphasise the need to look through short-term volatility when setting policy.
He is also likely to acknowledge that the ongoing conflict presents a dual risk—pushing up near-term inflation expectations while weighing on economic activity.
Citi’s Andrew Hollenhorst said the balance of risks could tilt messaging in a more dovish direction. “The rise in oil prices presents upside risk to inflation, but this is offset by increased downside risk to employment.”
He also pointed to the recent downward revision to Q4 consumer spending and the softer pace of activity at the start of 2026, adding that “Powell will likely be reluctant to offer new forward guidance amid elevated uncertainty.”
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- Oil surge shifts price focus to persistence risks
- Markets lower rate cut bets amid global repricing
- SEP to show higher inflation, unclear growth outlook
- Fed balancing inflation risks versus softening demand
- Announcement due at 18:00 GMT/14:00 EST
- Press conference set for 18:30 GMT/14:30 ET
By Harry Daniels
LiveSquawk News
@HarryDaniels71
17 March 2026 | 16:30 GMT
With the war in Iran in its third week and oil prices roughly 30% higher than a month ago, US Federal Reserve rate setters are gathering to decide on monetary policy.
It is widely expected that, amid heightened uncertainty, the FOMC will vote to hold interest rates within the 3.50–3.75% target range.
For many analysts, the concern around energy prices is less about how high and more about how long.
Barclays noted that the issue of “persistence” will be key for the central bank reaction. “The textbook policy prescription is for central banks to look through temporary supply shocks. However, with inflation expectations still elevated and potentially less firmly anchored after years of above-target price growth, central banks may not have that luxury if high energy prices persist and feed through to consumer inflation.”
Rate markets have already begun to reflect this risk, pricing out the likelihood of further cuts in the first half of the year. As Barclays’ Christian Keller observed, “across the major central banks, markets repriced policy rates higher this week.”
The Fed is set to update its summary of economic projections (SEP), with analysts primarily focused on potential revisions to the inflation outlook.
JPMorgan’s Michael Feroli suggested that clues can be drawn from the January minutes, which indicated upward revisions to both the economic path and consumer prices. “Between December and January, the staff revised its forecasts higher for both growth and inflation and thus sees the unemployment rate falling below its natural rate by the end of this year. Since then, we’ve had additional employment and inflation data, but the more significant factor for the outlook is the Middle East conflict.”
A poll showed economists broadly expecting both headline and core PCE inflation forecasts to be revised meaningfully higher for this year before easing over the remainder of the projection horizon.
On growth, views are more mixed. Feroli said, “While there has been conflicting data since [December], we think it is most likely that this year’s growth forecast will be revised down by a tenth or two.” He added that the longer-run GDP growth projection has remained at 1.8% since late 2020, though recent discussions point to greater optimism around supply-side dynamics.
In contrast, Barclays predicted a modest upward revision to 2026 GDP growth relative to December, citing stronger AI-related capital expenditure plans. “We do not think these changes will be sufficient to alter the FOMC’s median unemployment rate projections.”
In December, the median dot plot for end-2026 stood at 3.25–3.50%, effectively signalling just one rate cut over the year.
Barclays’ Pooja Sriram warned against talk of a shift in the rate outlook. “We think most participants will prefer to keep both rates and projections unchanged as they await greater clarity, particularly on how geopolitical developments affect oil prices, inflation and activity.”
Fed Chair Jerome Powell is expected to emphasise the need to look through short-term volatility when setting policy.
He is also likely to acknowledge that the ongoing conflict presents a dual risk—pushing up near-term inflation expectations while weighing on economic activity.
Citi’s Andrew Hollenhorst said the balance of risks could tilt messaging in a more dovish direction. “The rise in oil prices presents upside risk to inflation, but this is offset by increased downside risk to employment.”
He also pointed to the recent downward revision to Q4 consumer spending and the softer pace of activity at the start of 2026, adding that “Powell will likely be reluctant to offer new forward guidance amid elevated uncertainty.”