Fed Not Expected To Cut Rates With Inflation Looming

Facing the looming prospect of inflation driven in part by the Iran war, the Federal Reserve is not expected to cut interest rates when it meets Wednesday afternoon.

CNBC reported that markets were already pricing in the likelihood that no rate cut was forthcoming.

“The decision itself is almost guaranteed — a rate hold at the March meeting. But any hints Chair Powell might drop about the path of future interest rates will be key,” BeiChen Lin, senior investment strategist at Russell Investments told CNBC.

The Fed faces the prospect of higher inflation, in part driven by the Iran war. That prospect likely reduces any chance of lower interest rates. For example, the average price for a gallon of gas in the U.S. reached $3.84 according to AAA, up nearly 30 cents per gallon since last week. The price is about 80 cents per gallon higher when compared to the same time last year.

Gas prices always rise as the weather warms due to increased demand, but the current price increases also are being driven by the Iran war and the potential disruption and exportation of oil and natural gas from the Middle East.

With any rate cut for this meeting likely off the table, former Fed Vice Chair Roger Ferguson told CNBC that people will be watching the post-meeting statement carefully.

“The question in front of everyone’s minds is, what do they say, if anything, about the future and how they think about changing the balance of risks,” Ferguson told the network, adding that the Fed has been missing its 2 percent target for inflation for years now. “At some point, it’s going to start to come into question whether or not the 2 percent target is really what the Fed’s aiming at, and so I am much more worried about that.”