The Federal Reserve left interest rates unchanged this afternoon and did little to acknowledge an Iran war-driven shift in the balance of risks facing the US economy in the accompanying statement, suggesting that officials could resist adopting a more hawkish posture in the near term. In the widely-expected decision, the Federal Open Market Committee voted by an 11-to-1 margin to maintain the target range for the federal funds rate between 3.50 and 3.75 percent. Trump appointee Stephen Miran dissented in favour of cutting rates, while Christopher Waller—who had previously lobbied for more easing while correctly anticipating a downturn in labour markets—joined the majority in supporting the hold.

In small tweaks to the statement setting out the decision, officials noted that the unemployment rate has been “little changed in recent months,” and added a sentence noting that the “implications of developments in the Middle East for the US economy are uncertain”. Unexpectedly, a more evenly balanced formulation warning that upside risks to inflation—driven by surging energy costs—now sit alongside mounting downside risks to growth and the labour market was absent.

The all-important “dot plot” Summary of Economic Projections showed the median policymaker still expects to cut rates only once in 2026—matching the number currently priced into futures markets. One participant penciled in a rate hike for next year. Median core inflation expectations were lifted to 2.7 percent for this year, up from 2.5 percent in December, employment projections remained steady at 4.4 percent, and growth forecasts were raised to 2.4 percent from 2.3 percent previously.

The dollar is clinging to this morning’s gains and Treasury yields are holding firm on the policy-sensitive end of the curve as investors maintain bets on a rate cut coming before year end.

The greenback climbed earlier in the session when crude prices surged after Iranian authorities threatened to attack energy facilities in Qatar, Saudi Arabia and the United Arab Emirates in retaliation for an Israeli strike on Iran’s South Pars gasfield. A hotter-than-anticipated producer price print later kicked Treasury yields higher and added momentum to the move, suggesting that inflation was accelerating even before the outbreak of war.

Chair Powell is expected to stick to his typically-cautious messaging in the post-decision press conference, outlining a data-driven approach to managing the incoming energy shock—but small nuances in his language could hint at whether he sees the balance of outcomes tilted toward the employment or price stability sides of the Fed’s mandate.