US Fed Meeting 2026 Highlights: Central bank keeps rates unchanged, FOMC dot plot signals gradual easing ahead, outlook remains ‘uncertain’ amid Iran war

Jerome Powell: The Fed is concerned about the very, very low level of job creation. Over the past 6 months, if you adjust for overcounting, there is effectively zero net job creation in the private sector.

The S&P 500 dropped sharply during the day, falling 1.2% and hitting one of its lowest levels this year.

At the same time, oil prices continued to rise. US crude oil futures climbed about 1.4% to nearly $97 a barrel. Earlier in the day, prices even went above $99.

The US dollar also strengthened, while the 10-year Treasury yield moved up to around 4.25%. Some analysts believe rising war-related spending could be pushing these long-term yields higher.

Federal Reserve kept interest rates unchanged, as widely expected. It sees slightly higher inflation, steady unemployment, and is closely watching risks from the US and Israel-Iran conflict. Fed Chair Jerome Powell said rising energy prices could push inflation up in the short term, but the full impact remains uncertain.

Projections indicate just one small rate cut (0.25%) by the end of this year, with no clear timeline, unchanged from earlier forecasts and differing from Donald Trump’s call for sharper cuts. Policymakers are largely looking past the oil price shock and still expect rates to come down, with inflation seen easing to 2.2% by 2027. No officials expect rate hikes this year, though one sees a possible increase in 2027, while Fed Governor Stephen Miran dissented again, favouring a rate cut.

Rising fuel prices are expected to increase overall inflation and worsen affordability concerns. “Higher fuel costs, along with the downstream effects on shipping, travel and trade, are likely to add further pressure to consumer prices,” said Stephen Kates of Bankrate to CNBC. “Cutting rates while inflation is rising would be difficult to justify, even if it might receive political support.”

US stock markets declined after the Federal Reserve’s announcement, as investors reacted to concerns about persistent inflation. Dow Jones Industrial Average fell 714 points, or 1.5%, while the S&P 500 dropped 1.2% and the Nasdaq Composite slipped 1.3%.

Federal Reserve Chair Jerome Powell said he would not describe the current US economic situation as “stagflation,” regardless of concerns over rising oil prices and inflation.

“I would reserve the term stagflation for a much more serious set of circumstances,” Powell said, noting that unemployment remains near normal levels and inflation is only moderately above target.

He added that while inflation forecasts have been revised higher, growth expectations have also improved, supported by anticipated productivity gains.

Federal Reserve Chair Jerome Powell said he does not plan to step down while an ongoing investigation related to the central bank’s headquarters is unresolved and will remain in place until his successor is confirmed.

“I have no intention of leaving the board until the investigation is well and truly over,” Powell said.

He added that he has not yet decided whether he will continue as a Fed governor after his term as chair ends, saying the decision will depend on what is “best for the institution and for the people we serve.”

Federal Reserve Chair Jerome Powell said the central bank is navigating a difficult balance between supporting the labour market and controlling inflation.

“We are balancing these two goals,” Powell said, noting that downside risks to employment could argue for lower rates, while upside risks to inflation suggest keeping policy tight. “We’re in a difficult situation… and where we are now is kind of on that borderline of restrictive versus not restrictive,” he added.

Federal Reserve Chair Jerome Powell said inflation is expected to ease this year, but the pace of improvement may be slower than anticipated.

“The forecast is that we will be making progress on inflation not as much as we had hoped, but some progress,” Powell said, adding that tariff-related pressures should begin to fade around mid-year.

He noted that while projections point to possible rate cuts, these are not guaranteed. “The rate forecast is conditional on the performance of the economy, so if we don’t see that progress, then you won’t see the rate cut,” he said.

Federal Reserve Chair Jerome Powell said there is significant uncertainty around the impact of rising oil prices due to the US-Iran conflict. “The U.S. economy is doing pretty well,” Powell said, but added, “we don’t know what the effects of this will be, really, no one does,” highlighting the unclear outlook for growth and inflation.

Federal Reserve Chair Jerome Powell said monetary policy is not fixed and will be decided based on incoming data at each meeting.

“Monetary policy is not on a preset course and we’ll make our decisions on a meeting-by-meeting basis,” Powell said, adding that the Fed remains focused on its dual mandate of maximum employment and stable prices, with a commitment to bringing inflation back to its 2% target while keeping expectations anchored.

Federal Reserve Chair Jerome Powell said higher energy prices are expected to push up inflation in the near term and could weigh on consumer spending. “High prices may weigh on consumption,” Powell said, adding there is “no conviction” yet on how quickly these effects will pass through the economy. He noted that inflation so far has been driven by goods and tariffs, while the broader US economy continues to perform well.

Federal Reserve Chair Jerome Powell said any future rate cuts will depend on whether inflation continues to ease as expected.

“The forecast is that we will be making progress on inflation this year,” Powell said, adding that the rate outlook is tied to economic conditions. “If we don’t see progress, you won’t see a rate cut.”

The Federal Reserve said the ongoing conflict in the Middle East is adding uncertainty to the economic outlook, particularly through its impact on oil prices and inflation. “The implications of developments in the Middle East for the U.S. economy are uncertain,” the Fed said in its policy statement, warning that the situation could complicate its path toward bringing inflation back to the 2% target.

Federal Reserve Chair Jerome Powell said the central bank is closely tracking inflation trends, noting that a large part of current price pressures is linked to tariffs and energy shocks. “We’re well aware of inflation performance over the past few years,” Powell said, adding that “it’s important to see progress through a reduction in goods inflation as tariff effects pass through the economy.” He noted that core inflation is around 3%, with “roughly half of this coming from tariffs,” and stressed that the impact of energy shocks will depend on inflation expectations remaining anchored.

Fed Chair Jerome Powell is addressing the media following the policy announcement.

Jerome Powell’s term as Federal Reserve chair ends in May, his tenure as a Fed governor runs until January 2028.

Traditionally, Fed chairs step down from the board when a new chair takes over. However, concerns about the central bank’s independence—and the possibility of additional appointments by Donald Trump have raised speculation that Powell could choose to stay on.

Powell, 73, has not publicly outlined his plans. If he remains, his position could carry added weight, potentially serving as a swing vote on the Fed’s seven-member board.

Court filings show that Powell’s attorneys discussed the possibility of him continuing as a governor during a meeting with the Department of Justice in January.

Such a move would break with precedent, and there is no clear roadmap for how Powell would operate in that role or interact with chair nominee Kevin Warsh.

In the statement, Fed stated that it will continue to assess incoming data to guide its monetary policy decisions and adjust its stance if risks threaten its economic goals. The central bank added that it will consider a broad set of indicators, including labour market conditions, inflation trends and expectations, as well as financial and global developments.

In its Summary of Economic Projections, the Federal Reserve raised its forecast for headline PCE inflation to 2.7%, up from 2.4%. The outlook for core inflation, which excludes volatile components, was also revised higher to 2.7% from 2.5%.

The FOMC policy decision was supported by Chair Jerome Powell, Vice Chair John C. Williams, and governors Michael S. Barr, Michelle W. Bowman, Lisa D. Cook, Beth M. Hammack, Philip N. Jefferson, Neel Kashkari, Lorie K. Logan, Anna Paulson, and Christopher J. Waller. Governor Stephen Miran dissented, preferring a 25 basis point rate cut at this meeting.

Policymakers said uncertainty around the outlook remains elevated, with Middle East developments adding to risks.

Fed Governor Stephen Miran dissented, preferring a 25 basis point rate cut at this meeting.

As per the latest statement, job gains have remained low and the unemployment rate has seen little change in recent months.

The Fed said economic activity is expanding at a solid pace, while inflation remains somewhat elevated.

The Fed said Middle East developments pose uncertainty for the US economy, while noting activity remains solid, inflation is still elevated, and job gains have stayed low.

Median Fed officials now see core inflation at 2.7% by end-2026 (vs 2.5% earlier), while GDP growth is pegged at 2.4%, slightly higher than previous estimates.

Fed’s dot plot shows policymakers still expect two rate cuts, one in 2026 and another in 2027 unchanged from December projections.

US Fed keeps rates unchanged at 3.5%–3.75% in 11-1 vote

The US-Israeli conflict with Iran is pushing oil prices higher, which could weigh on consumer spending. The average price of gasoline in the US rose to $3.84 per gallon on Wednesday morning, up from $3.79 a day earlier, according to data from motorist group AAA. That marks an increase of about 28% compared to levels before the conflict began. Higher fuel costs risk adding to already elevated inflation, which has also been driven by the Trump administration’s tariff measures on imports.

While the Federal Reserve is expected to keep interest rates unchanged, any discussion about potential rate hikes would be a concern for markets, Rob Haworth, senior investment strategy director at U.S. Bank Asset Management Group, said on Tuesday, according to Reuters.

“With higher oil prices, we’ll often get higher inflation,” Haworth said, adding that such dynamics could complicate the outlook for policy easing and unsettle investors.