Fed Holds Rates Steady as Iran War Stirs Inflation Risks

SECAUCUS, NJ (DTN) – The Federal Reserve announced Wednesday (1/28) that benchmark U.S. interest rates will stay in a 3.5%–3.75% range as it noted higher inflationary pressures from a 40% spike in oil prices caused by the Iran war.

“The Committee decided to maintain the target range for the federal funds rate at 3‑1/2 to 3‑3/4 percent,” the Fed’s policy-making Federal Open Market Committee said in a statement, adding that “inflation remains somewhat elevated.”

It was the second time the Fed had left rates unchanged this year, after a similar decision on January 20. The latest decision came amid growing concerns about inflation, with U.S. pump prices for gasoline have risen for four straight weeks from global supply outages triggered by latest conflict In the Middle East.

While the U.S. Consumer Price index showed a flat year-on-year reading of 2.4% in February, Goldman Sachs has cautioned that a sustained 10% increase in oil prices risks boosting the headline inflation rate by 0.2 percentage points.

Market moves at 2:05 p.m. ET:

• NYMEX WTI for April delivery was down $0.75 at $95.49 bbl. The ICE Brent contract for April, in contrast, rose $2.91, or 2.8%, to $106.33 bbl. Crude and other energy prices have rallied with few stops since the U.S.-Israel attacks on Iran that began on February 27 turned into a wider Middle East conflict. Average retail prices for regular gasoline rose by 21.8cts to $3.720 gallon last week, standing 66.2cts higher compared to the same week last year, the U.S. Energy Information Administration reported.
• The Dollar Index was up 0.24 points to 99.57 against a basket of currencies. Notwithstanding Wednesday’s moves, the dollar has risen by 2.3% since the end of February as the U.S. currency pivoted into safe haven status with the war.