Fed’s Road to Rate Cuts just Got Bumpier as Iran Conflict Props up Oil

The original story by Aimee Picchi for CBS News.

If you were banking on faster rate relief, brace yourself: the fight in the Middle East is making life harder for the central bank to loosen policy anytime soon. The Fed meets on March 18, and what looked like a path toward a June rate cut has been rerouted by surging energy prices and fresh inflation risks.

Markets now expect the bank to sit tight. According to CME FedWatch, there’s almost no chance of a move at the March meeting and odds of a cut in June have fallen sharply — traders are pushing out their bets into the back half of the year.

Why? Higher oil and gas costs from the Iran conflict are bleeding into the real economy — think pricier shipping, food and utilities — and that feeds straight into headline inflation. The Fed’s favorite inflation read, the PCE index, was already nudging up in January, so policymakers are watching for the war’s push on prices before they decide it’s safe to ease.

Some economists are revising their playbooks. EY-Parthenon’s team, led by Gregory Daco, now sees fewer cuts this year — maybe only one late in 2026, or possibly none. And it’s not just caution: a few strategists even say a hike can’t be ruled out if inflation keeps surprising to the upside.

Others are even blunter. Sonu Varghese of Carson Group warns the Iran shock could flip the script entirely, turning an expected easing cycle into a prolonged wait — or a fresh tightening conversation.

At the same time, the jobs picture is flashing yellow: U.S. payrolls unexpectedly dropped in February, with employers cutting about 92,000 positions. That weak hiring complicates the Fed’s choice — cut rates to prop up the labor market and risk higher inflation, or hold and risk more job pain. That’s the tightrope the central bank is walking, says Gus Faucher of PNC.

And if you think leadership changes make this simpler, think again. President Donald Trump has nominated Kevin Warsh to replace Jerome Powell in May. A new chair stepping into a hotter inflation backdrop would inherit a tricky mix: calming markets, preserving credibility on inflation, and (maybe) deciding whether and when to start cutting — all while under a political microscope.

Higher energy costs from the Iran war have pushed the Fed’s rate-cut timetable out, and they’ve handed the next chair a messier policy menu. If you want lower borrowing costs, you may have to be patient — or at least ready for more volatility.