The Fed Hits Pause as the Economy Heads into a Stagflation Pressure Cooker

The Fed’s stuck holding a hot stove — and there’s no easy way to let go. It held rates steady at 3.5%–3.75% for a second straight meeting, even as the Iran war fuels an oil shock that’s pushing inflation up and growth down. Gas prices have jumped ~27% in four weeks, while Q4 2025 GDP was revised to just 0.7%, half the original estimate — a stagflation mix that was already brewing before the conflict escalated.

• The Fed raised its median inflation forecast to 2.7% (from 2.4%), with core inflation also revised up to 2.7% (from 2.5%).
• The committee is increasingly split — 12 officials expect at least one cut this year, while 7 now see rates holding through 2026 (up from 4).

Waiting for clarity: Fed Chair Jerome Powell said higher energy prices will lift inflation in the near term, though how long it lasts remains unclear. Rate cuts are still conditional — something markets can’t rely on — and Nationwide’s Kathy Bostjancic warns inflation could climb further as energy costs ripple through the economy. With Powell’s term ending May 15 and Kevin Warsh facing a Senate block, the next chair will face an even tougher balancing act.