Iran war is making it harder for the Federal Reserve to cut interest rates

Americans eager for lower borrowing costs may have a long wait ahead of them. Edited by Alain Sherter In:

Americans eager for lower borrowing costs may have a long wait ahead of them.

The Iran war is complicating the picture for the Federal Reserve, which is set to meet on March 18 for its next interest rate decision. Economists had predicted the Fed would hold its benchmark rate steady on Wednesday, but many had penciled in a cut at the central bank's next meeting in June.

Soaring oil and gas prices, sparked by the conflict in the Middle East, now have economists tearing up their forecasts. Higher energy prices could ripple through the economy, pushing up transportation costs, food prices and utilities, according to Wall Street analysts. 

The specter of higher inflation poses a conundrum for policymakers, who face the challenge of ratcheting down inflation toward the Fed's 2% annual target while also propping up a labor market that is showing signs of fatigue.

On March 13, the Fed's preferred inflation gauge — the Personal Consumption Expenditures index — showed that consumer prices crept higher in January, a sign that costs continued to rise even before the Iran war's impact on the energy sector.