Fed meeting updates: FOMC set to hold rates steady as oil prices soar

Gas prices have surged

Oil prices recently surged past $100 per barrel in response to the US and Israel's ongoing air strikes against Iran. Trump signaled that the war could end soon, briefly calming markets, but volatility remains. Most traffic through the Strait of Hormuz has been halted since the first week of March.

Average gas prices have climbed to over $3 a gallon, and many consumers are scrambling to fill up their vehicles. It's the first time since 2023 that every US state posted an average gas price above $3, per AAA.

The war has already pushed up the cost of some plane tickets, and oil supply disruption could soon start impacting the cost of household utilities and food.

All eyes are on how the Iran war will affect inflation

The Bureau of Labor Statistics published new consumer price index data last Wednesday, showing the inflation rate held steady at 2.4% in February as expected. Core inflation, which excludes volatile food and energy prices, also held steady at 2.5%.

However, that report was based on data mainly gathered before the start of the Iran war, which could heat up inflation and jeopardize progress toward the 2% goal. Economists expect to see the effects of the oil shock from the Iran war as soon as the next report.

Oil prices remain elevated as the Strait of Hormuz remains largely closed off. Gas prices are up from a month ago, and there are other factors affecting what consumers pay at the pump, such as higher demand in the spring.

Alexandra Wilson-Elizondo, global co-chief investment officer of multi-asset solutions at Goldman Sachs Asset Management, said February data "was collected before the conflict in Iran sent crude oil surging roughly 30%, with natural gas, aluminum, fertilizer, freight rates, and shipping insurance moving higher with it."

"The Strait of Hormuz remains the wildcard, and if disruption is sustained, the inflation improvement embedded in today's print could reverse quickly," Wilson-Elizondo said in commentary following the CPI report.

Finding a job is difficult in the bleak market

Even though the US needs fewer jobs to keep unemployment steady than in the past, February's job market report was disconcerting. The US lost 92,000 jobs in February after adding a revised 126,000 jobs in January. That was partly due to job losses in the healthcare sector from a strike. Unemployment ticked up, and labor force participation dropped to its lowest level since December 2021, at 62%.

"It's going to be a much more competitive market, and so if you are looking for a job right now, you need to be doing the things that are going to help you stand out," Cory Stahle, an economist at Indeed Hiring Lab, said.

The broader economy is also looking worse than previously thought. GDP revisions published on Friday showed that real growth in last year's fourth quarter was just 0.7%, half the 1.4% estimate in the advance report in February.

Markets latest: Stocks set to move a little higher, oil benchmarks split

With a hold from the Fed heavily priced in, the conflict in Iran continues to be the biggest show in town in markets.

Relative calm is the prevailing narrative on Wednesday, with futures in all three major US indexes pointing towards gains of around 0.5% when trading begins at 9:30 a.m. ET.

In Europe and Asia, stocks are also trading higher, with Germany's DAX benchmark 0.7% up as of around 7 a.m. ET, and Japan's Nikkei 0.6% higher.

Oil's two main benchmarks diverged a little on Wednesday morning, with WTI oil down 1% to around $94 per barrel, and Brent crude, the international benchmark, up 0.5% to just shy of $104.

The dollar index, which tracks the greenback against a basket of global currencies, was almost completely unmoved, trading 0.03% higher.

A likely hold

CME FedWatch, which estimates probabilities of the Fed's choices based on market moves, is predicting a near-total chance of an interest rate hold. Holding rates steady could help temper inflation, at the risk of leaving an already sluggish labor market without support. Fed leaders will have to weigh both ends of their dual mandate, which focuses on stable prices and maximum employment.

Powell was optimistic at the January meeting: "The US economy expanded at a solid pace last year and is coming into 2026 on a firm footing," he said. "While job gains have remained low, the unemployment rate has shown some signs of stabilization, and inflation remains somewhat elevated." However, with rapidly shifting oil prices, the committee's inflation outlook may now be more tempered.

A tumultuous news month

Central bank leaders last met in late January. Since then, the Bureau of Labor Statistics reported a loss of nearly 100,000 jobs, the Supreme Court voted down many of President Donald Trump's tariffs, and the US began a war with Iran that cut off a large part of the world's energy supply.

If the FOMC wasn't already feeling cautious about monetary policy, they are now.