Fed seen holding rates as oil jumps, stagflation fears rise

The Federal Reserve is widely expected to keep its benchmark rate at 3.5% to 3.75% on Wednesday, the first decision since the U.S.-Israeli war with Iran pushed energy costs higher and revived worries about stagflation.

Futures markets put the probability of no change near 99%, based on the CME FedWatch Tool.

Policymakers meet in Washington, D.C. The Fed left rates unchanged in January after three straight quarter-point cuts.

Officials are weighing how borrowing costs affect inflation and growth. Lower rates could support activity but risk faster price increases, while higher rates could restrain prices and slow the economy.

U.S. crude traded near $96 a barrel on Tuesday, up more than 50% from a month earlier. Since the fighting began, the national average for regular gasoline has risen 81 cents to $3.79 a gallon, AAA estimates. Higher fuel costs can lift transportation expenses for goods.

Recent reports point to slower momentum. A government revision showed gross domestic product grew at a 0.7% annualized rate in the fourth quarter of 2025. Employers cut 92,000 jobs in February, and the unemployment rate edged up to 4.4% from 4.3% in January.

The current target range is below the 2023 peak but remains well above the near-zero level set early in the pandemic.

The meeting also follows a court fight involving the central bank. A federal judge last week blocked Justice Department subpoenas to the Fed's Board of Governors, writing that the government “produced essentially zero evidence” to support a criminal probe of Chair Jerome Powell, according to an opinion unsealed Friday. The judge added, “A mountain of evidence suggests that the Government served these subpoenas on the Board to pressure its Chair into voting for lower interest rates or resigning.” Acting U.S. Attorney Jeanine Pirro criticized the ruling, labeling the judge an “activist” and indicating the government will appeal.

Officials will review how sustained oil and gasoline gains may influence inflation while considering recent softness in hiring and output.