Federal Reserve holds policy meeting this week, Iran conflict causes one-fifth of global oil supply to stall

Gate News reports that on March 16, the Federal Reserve officials will hold a policy meeting this week, and their policy outlook has been disrupted by the Iran war, which has caused one-fifth of global oil supplies to halt. The officials will discuss whether this conflict is more likely to undermine economic growth, trigger more persistent inflation, or create a complex situation where economic slowdown and rising prices coexist.

Considering that supply shocks during the pandemic led to the Fed failing to achieve its 2% inflation target for five consecutive years, policymakers are more likely to adopt a cautious stance this week. The current inflation rate remains about 1 percentage point above the target, and with oil prices soaring nearly 50% in two weeks and remaining high, further increases are expected. Officials must also weigh whether this emerging economic shock could become a catalyst for breaking economic resilience, which is expected to not only cause rising prices but also tighten financial conditions, lower asset prices, and increase uncertainty.

Markets expect the Federal Reserve to keep interest rates unchanged at this week’s policy meeting. Data since the last meeting show that the basic outlook has hardly changed, and the Fed is in a leadership transition—Kevin Warsh, nominated by Trump, is expected to eventually be confirmed by the Senate and take over from Chair Powell after mid-May. Nevertheless, Fed officials will still submit new economic forecasts to assess whether future measures should involve maintaining tight monetary policy to combat inflation or cutting rates to offset economic slowdown.