Fed Set to Hold Rates as West Asia Conflict Fuels Inflation Risks Ahead of Powell Exit

The US Federal Open Market Committee (FOMC) is set to begin its April meeting late Tuesday. The committee is widely expected to hold the benchmark federal funds target range steady at 3.50–3.75% amid rising uncertainty stemming from the West Asia crisis.

The April meeting will also mark Federal Reserve Chair Jerome Powell’s final policy decision before Kevin Warsh takes charge next month.

According to the CME FedWatch tool, traders are pricing in a 100% probability that the Fed will maintain the status quo at the April 28–29 meeting.

The West Asia conflict, involving Iran, Israel, and the US, has entered its second month, pushing global commodity prices—especially crude oil—to elevated levels. The closure of the Strait of Hormuz has disrupted key global trade routes, fuelling concerns of a broader economic slowdown.

The Fed’s dual mandate is to maintain price stability and maximise employment. While lower interest rates typically support growth, rate hikes are used to curb inflation.

However, the current geopolitical backdrop has complicated this balancing act, forcing central banks to weigh inflation risks against growth concerns. Reports suggest Fed officials may prioritise inflation control over supporting employment.

US consumer inflation rose to a two-year high of 3.3% in March, driven largely by a surge in energy prices.

Fed Governor Christopher Waller, who had earlier supported rate cuts, has indicated that a prolonged conflict could limit the Fed’s ability to ease policy this year. This “may mean maintaining the policy rate at the current target range if the risks to inflation outweigh those to the labour market,” he said.

J.P. Morgan Global Research now expects the Fed to hold rates steady through 2026, with the next move likely to be a 25 basis point hike in the third quarter of 2027. Earlier, markets had anticipated rate cuts this year.