Fed keeps rates steady as it confronts new inflation threat: Soaring gas prices

The Fed kept interest rates on hold as it confronts the Iran war threat of new inflation driven by higher gas prices.

The Federal Reserve on Wednesday held interest rates steady, as the U.S.-Israeli war with Iran disrupts the global economy and sends oil prices soaring.

Two weeks after the initial attacks, unleaded and diesel gas prices have skyrocketed alongside the cost of oil.

Attention now turns to how Chair Jerome Powell and policymakers decide to respond to the growing Middle East oil crisis. Investors and consumers hoping for interest rate cuts will be on the edge of their seats when Powell steps up to the lectern at the central bank’s headquarters at 2:30 p.m. ET.

Traditionally, central bankers “look through” or discount short-term spikes in gas and oil prices until they impact the price of other goods. Instead, they primarily focus their attention on “core inflation,” a number that excludes the more volatile food and energy prices.

That may not be possible this time, however. The already weakened state of the economy even before the conflict in the Middle East has increased Americans’ vulnerability to a domino effect of higher costs that begins with skyrocketing gas prices.