Fed Holds Rates Steady, but Says Iran War Causing Economic Uncertainty

SPEAKER_1 (0:00)

Voices are powerful things. At Vanguard, investors are also owners, and their voices are heard. And now with Investor Choice, they have an even greater voice when investing. It's just another reason millions of investors have turned to Vanguard for 50 years. 50 million investors, 50 million voices. Vanguard. Vanguard is owned by its funds, which are owned by Vanguard's fund shareholder clients. To learn more, visit vanguard.com. All investing is subject to risk. Vanguard Marketing Corporation distributor, figure as of January 2025

Alex Ossola (0:32)

The Fed holds rates steady, but the war with Iran clouds its outlook for future decisions. Plus, oil prices rose again today after new attacks on Middle East energy infrastructure. And how US. Marines could help reopen the Strait of Hormuz and get oil flowing again.

SPEAKER_1 (0:48)

This unit is typically used for raids or special operations. It seems likely that the US. Marines that are being sent to the Middle East could be deployed to see some of the islands off of the southern coast of Iran.

Alex Ossola (1:03)

It's Wednesday, March 18th. I'm Alex Ossola for The Wall Street Journal. This is the PM Edition of What's News, the top headlines and business stories that moved the world today.

The Federal Reserve held interest rates steady today for the second meeting in a row. And for later this year, officials kept open the possibility of cutting rates, even as higher energy prices from the Iran War threatened to make bringing down inflation more difficult. For more on the Fed's decision, I'm joined now by WSJ economics reporter Matt Grossman. Matt, how did officials talk about the prospect of rising inflation due to higher energy prices? Do they see it basically as a guarantee or are they still going to kind of wait and see?

Matt Grossman (1:45)

Well, in his press conference today, Chair Powell talked about the effects of the war in Iran as highly uncertain.

Jerome Powell (1:52)

The implications of events in the Middle East for the US economy are uncertain. In the near term, higher energy prices will push up overall inflation, but it is too soon to know the scope and duration of the potential effects on the economy.

Matt Grossman (2:06)

What he did point to was the risk that some of the inflation that was already part of the economy before the conflict started could stick with us and that the Fed has been a bit frustrated that they haven't seen more progress on that so far this year.

Alex Ossola (2:21)

The Fed officials make projections about future rate cuts and increases. Have those changed at all?

Matt Grossman (2:27)

The top line result is that the median Fed official penciling in one interest rate cut over the rest of this year. Under the surface, there were some officials who previously thought the Fed could cut several times, who narrowed that forecast a little bit, seeing less of a path toward more than one cut this year. So, there wasn't a dramatic change in the rate projections, but in his press conference, Chair Powell really emphasized that the Fed isn't just concerned about the Iran conflict as far as more rate cuts go, that they also really want to see more progress on some of the underlying inflation and the tariff-driven inflation before they think about bringing rates down farther. He mentioned that there were a couple people at today's meeting who suggested that a potential rate hike might be a possibility in the future, although he did emphasize that that is not the view of most of the people on the committee.

Alex Ossola (3:24)

President Trump has continued to put pressure on the Fed as recently as this week, in fact, to cut rates. Did we see that have an impact today?

Matt Grossman (3:32)

Well, Powell only talked briefly about the investigation that he's been facing. He has said as part of Trump's pressure campaign to influence how the Fed sets rates, how his term as a chair of the Fed ends in May, but even after May, Powell would have the opportunity to stay on the Fed in his role as a governor, a member of the board. And today, Powell reiterated something that came up in a legal filing last week, which was that he really wants to stay in that position until the investigation wraps up.

Jerome Powell (4:06)

And while I'm at it, on the question whether I will leave while the investigation is on going, I have no intention of leaving the board until the investigation is well and truly over.

Matt Grossman (4:17)

In other words, doesn't want to leave under duress.

Alex Ossola (4:20)

That was WSJ Economics reporter, Matt Grossman. Thanks, Matt.