The US Federal Reserve is expected to keep interest rates on hold at its meeting early Thursday morning as economic uncertainty from the Middle East conflict enters its second month. While overall inflation has risen due to a surge in gasoline prices, central bank officials are still watching to see whether higher energy costs will start to trickle down to the prices of other goods and services.
Economists have warned that oil prices that remain above pre-war levels will have a long-term impact on economic growth. Former Cleveland Fed President Loretta Mester stressed the need for caution before resuming rate cuts to ensure inflation truly moves toward its 2% target.
So far, the Fed has shown no signs of raising interest rates, but it is also in no rush to cut them. Esther George of the Kansas City Fed thinks interest rates will likely remain at current levels at least until the second half of this year while energy supplies stabilize.
From a market perspective, Polymarket data shows high confidence that WTI oil prices will reach over $105 by the end of April 2026. The supply pressure from this conflict is feared to test the anchor of long-term inflation expectations that has been the basis of Fed monetary policy.
The meeting also covered the issue of the Fed leadership transition, with Jerome Powell expected to maintain policy flexibility for his potential successor, Kevin Warsh. The recent dismissal of the criminal investigation against Powell has cleared a clearer path for the Senate confirmation process for the new chairman.
