Trump says Iran targets oil tanker, Iran war is ‘in very good shape’
President Donald Trump said the United States is in “very good shape” as attacks on oil tankers continue in the Middle East.
Forecasters widely expect the U.S. Federal Reserve to keep its benchmark interest rate unchanged at the end of its two-day meeting on March 18, as policymakers consider the economic impact of the ongoing war with Iran.
In addition to the U.S. going to war, a lot has happened since the Federal Open Market Committee kept interest rates unchanged at its target range of 3.5% to 3.75% at its last meeting in January, after cutting rates three times late last year.
The Bureau of Labor Statistics’ employment data for January and February sent mixed signals about the labor market, with stronger-than-expected growth in January and job losses in February. CPI inflation has slowed since policymakers last met, but economists want to see data for March because the latest numbers do not reflect the recent spike in oil prices. Rising oil prices could ripple through the supply chain and push up other prices.
Meanwhile, the Bureau of Economic Analysis has revised down its GDP growth forecast for the fourth quarter of 2025 by 0.7% from the initial forecast of 1.4%, from 4.4% in the previous quarter.
Now, concerns about stagflation are resurfacing. Wells Fargo economists said in a March 12 memo that high inflation and a weak labor market are the committee’s “worst nightmare” as it juggles the dual mandate of keeping price stability and unemployment low.
What’s going on with the job market and inflation?
The BLS reports that the U.S. economy added 126,000 jobs in January, but lost an estimated 92,000 jobs in February (now revised downward). The unemployment rate fell from 4.4% in December to 4.3% in January, but returned to 4.4% in February.
CPI inflation fell from 2.7% in December to 2.4% in January and February. While this may be a sign that prices are stabilizing under normal circumstances, it does not reflect the potential inflationary impact of the Iran war. Core PCE, one of the Fed’s preferred inflation measures, rose 3.1% in January from a year earlier, the highest level in more than a year.
Despite all the developments since the last FOMC meeting, Boston University economics professor Brian Bethune said the Fed’s dilemma remains the same.
“Tariffs are a supply shock. Oil prices are a supply shock. Well, guess what? A central banker’s worst nightmare is a supply shock, because it puts upward pressure on inflation and downward pressure on employment,” Bethune said. “There is no easy path to interest rates.”
Liz Thomas, head of investment strategy at SoFi, added that if Fed policymakers are faced with stagnant or rising inflation and a weak labor market, “they may have to choose which one to target because they don’t have the tools to solve for both.”
What are the economic consequences of the Iran war?
The US decision to go to war continues to shock Wall Street. Iran controls the Strait of Hormuz, which normally transports about 20% of the world’s oil supplies, which has halted most traffic, sending oil prices soaring and creating instability.
Much of the economic impact of war is determined by how long it lasts. U.S. consumers are already paying more for fuel, and some companies are adding fuel surcharges to prices.
“The futures market is pricing this in as a short-term disruption,” said Matt Dizok, chief investment office fixed income strategy officer at Bank of America and Merrill. “That might give the Fed some comfort in considering it.”
Bethune said tapping into strategic oil reserves could help ease the demand pinch, but easing sanctions on Russian oil would have little impact on global oil prices.
“Who is Russia allied with? Iran.” Bethune said. “If Russia increases oil revenues and increases support for Iran, the war will be prolonged.”
Will rising oil prices accelerate inflation?
For high oil prices to lead to sustained increases in inflation, Dizok said, consumers would have to keep buying at the same pace as before, which typically happens when people feel positive about job prospects, consumer confidence is high and consumers have significant savings.
None of that is true at this point, he said.
“In our opinion, tariffs have not led to large or sustained increases in inflation because they are one-time price increases that people adjust to. People are buying less of certain things,” Dizock said. “The same thing could happen with short-term increases in energy prices.”
Bethune said that while the tariffs did result in some price increases for consumers, implementation was more gradual and subtle than expected, so it’s not surprising that they did not cause the higher levels of inflation that he had initially expected. He added that companies have shouldered much of the remaining costs by adjusting supply chains and reducing employment, thereby reducing labor costs without significantly changing consumer behavior.
Now, if oil prices remain high, these companies will face new cost pressures and have few or no alternatives to oil. The question is whether productivity gains can be extracted again from a flat workforce, especially amid low income growth, Bethune said.
When will the Fed adjust interest rates?
Forecasters expect the FOMC to keep interest rates unchanged at its March and April meetings, increasing the likelihood of a rate cut in the summer.
However, the March decision is not expected to be unanimous, especially after Trustees Stephen Millan and Christopher Waller opposed the committee’s decision to hold interest rates in January.
“Governors Millan and Waller are likely unconvinced that the labor market is stabilizing, and perhaps want to ‘see’ a supply-side oil shock, a view with which we have much sympathy,” Wells Fargo economists said in a note. “However, as inflation enters its sixth year and rises above 2%, there are signs that some of the committee’s hawks are feeding into further inflation shocks.”
Oxford Economics expects the Fed to cut interest rates in June and September as core inflation slows.
Interest rate decisions for March will be announced along with the FOMC’s economic forecast summary. The quarterly report includes members’ forecasts on the appropriate path for interest rates, as well as forecasts for gross domestic product (GDP) growth, unemployment and inflation.
Is Mr. Powell’s tenure on the FOMC nearing an end?
The post-rate decision press conference could be Chairman Jerome Powell’s penultimate as his term ends in May. It is unclear whether Mr. Powell will remain on the Fed’s board, his term ending in January 2028. He has refused to answer this question at previous meetings.
The March meeting will be the first since President Trump nominated former Federal Reserve Director Kevin Warsh to be the next central bank chairman. Warsh’s confirmation has stalled in the Senate, where Sen. Thom Tillis (R-North Carolina), He vowed to block any Fed nominations until the Justice Department’s ongoing investigation into Mr. Powell is resolved. A federal judge on March 13 blocked subpoenas issued to the Federal Reserve Board in connection with that investigation, but the Justice Department plans to appeal the ruling.
“The government has presented virtually no evidence to impugn Chairman Powell’s crimes. In fact, its justifications are so tenuous and baseless that the court can only conclude that they are pretexts,” Chief U.S. District Judge James Boasberg said in the ruling.
On March 13, Mr. Tillis strengthened his stance to block the appointment of a new chairman.
“This ruling confirms how weak and frivolous Chairman Powell’s criminal investigation is, and is nothing short of a failed attack on the Fed’s independence,” Tillis said in a post. “We all know how this will end, and the DCUS Attorney’s Office should move forward without further embarrassment. Appealing the ruling will only delay Kevin Warsh’s confirmation as the next Fed Chairman.”
Another lawsuit involving Federal Reserve President Lisa Cook continues to plague the central bank. After President Trump tried to fire her in 2021 over allegations that she committed mortgage fraud, Cook denied any wrongdoing and the case went to the nation’s highest court. The Supreme Court heard oral arguments in January but has not yet issued a decision.
Contact Rachel Barber rbarber@usatoday.com X Follow her at @rachelbarber_
