Will the US Fed hike or lower key rates on Wednesday? Here's what to expect from Jerome Powell

Fed interest rate decision: As the US Federal Reserve prepares for its next policy decision, investors and economists are asking a key question: will the central bank raise rates, cut them, or hold steady?

For now, most analysts expect Fed Chair Jerome Powell and fellow policymakers to keep interest rates unchanged when the central bank concludes its two-day meeting on Wednesday, as per a report.

The decision comes at a difficult moment for the Fed. The ongoing conflict involving US president Donald Trump’s United States, Israel and Iran has sent shockwaves through global markets and pushed oil prices higher, raising concerns about inflation even as economic data shows signs of weakness.


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Why the Fed may hold rates steady

The Federal Reserve begins its meeting on Tuesday, with an announcement on the benchmark lending rate expected the following day.

The central bank had already cut interest rates three times last year before pausing in January. With new global uncertainties emerging due to the war in the Middle East, analysts say policymakers are unlikely to make a major move right now, as per an AFP report.

Gregory Daco, chief economist at EY-Parthenon, said "This is certainly a bind for the Fed, because supply shocks are extremely hard to deal with in that they lift inflation and they curb output," as quoted by AFP.

Inflation still above target

The Fed’s job is complicated by its dual mandate: keep inflation near a long-term target of two percent while maintaining maximum employment.

Although inflation has cooled significantly from its pandemic-era peak of 9.1 percent, it still remains above the central bank’s goal.

According to Diane Swonk, chief economist at KPMG, "Unlike other countries, which have already achieved some level of price stability, we're five years in without price stability," as quoted by AFP. Swonk added, "I think the main story here is that we are seeing inflation moving away from the Fed's two-percent target, and that will lead many Fed policymakers to adopt an even more hawkish stance," as quoted in the report.

That risk could push some Fed policymakers toward a more hawkish stance, meaning they may favor keeping interest rates high or even raising them to control inflation.

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Jobs data adds another challenge

At the same time, raising interest rates could create tension with the Fed’s other priority: protecting jobs.

Recent government data showed the United States unexpectedly lost 92,000 jobs in February, while the unemployment rate rose to 4.4 percent.

Economists say the relatively steady unemployment rate may hide deeper shifts in the labor market. Hiring has slowed significantly, while labor supply has also dropped as immigration restrictions have reduced the number of available workers.

Daco pointed to several warning signs in the labor market, including a hiring rate that has fallen to a decade low, slower wage growth and increasing discussions among businesses about replacing workers with artificial intelligence, as per the AFP report.

Uncertainty from war and economic slowdown

The geopolitical uncertainty surrounding the Iran conflict is also affecting business decisions.

Swonk said, "Uncertainty acts as its own tax on the economy, and one of the first lines of defense that firms do is they freeze hiring," as quoted by AFP.

Recent economic data has already shown signs of weakness, with US GDP growth in the final months of 2025 revised sharply lower.

A difficult balancing act for the Fed

Some Fed officials remain cautious about assuming the war will lead to long-term inflation.

Fed Governor Christopher Waller said that while higher gasoline prices are painful for consumers, the spike may not necessarily lead to sustained inflation.

Still, economists warn that the broader economic effects of war, including supply disruptions, could linger longer than expected.

Swonk described the Fed’s position as extremely challenging as policymakers attempt to balance rising inflation risks with a weakening labor market.

For now, Daco believes the most likely outcome is that the Fed keeps rates unchanged for an extended period, as per the AFP report.

Traders have already begun scaling back expectations for rate cuts, and some analysts say rate hikes cannot be completely ruled out.

FAQs

Are analysts expecting the Fed to raise or cut rates this week?
Most analysts expect the Fed to keep interest rates unchanged for now due to economic uncertainty.

Why is the Fed cautious about changing interest rates?
Rising oil prices and global uncertainty from the Middle East conflict are making policymakers cautious about major policy moves.