Yellen: Fed 'On Hold' Amid Iran Risk
Treasury Secretary Janet Yellen signaled the Federal Reserve is now “even more on hold” regarding rate cuts, citing the risk of conflict with Iran. This stance comes as new data shows US manufacturing activity held steady in February, but factory gate prices surged, fueling inflation fears and strengthening the dollar.
The Federal Reserve's cautious approach follows a series of three quarter-point rate cuts in the latter half of 2025, which brought the benchmark rate to a range of 3.50% to 3.75%. The central bank has maintained this rate through its January 2026 meeting, aiming to assess the impact of previous cuts and navigate persistent, albeit moderating, inflation. The primary concern stemming from the Iran conflict is the potential for a spike in global oil prices. A key vulnerability is the Strait of Hormuz, a critical chokepoint through which approximately 20% of the world's petroleum passes. Any prolonged disruption to shipping in this strait could significantly tighten global oil supplies, adding substantial upward pressure on energy prices and overall inflation. Recent inflation data has already given the Fed reason for pause. The Producer Price Index (PPI) for January 2026 rose 0.5%, exceeding analysts' expectations. This increase was largely driven by a 0.8% advance in the cost of services. On an annual basis, the final demand PPI was up 2.9% as of January. On the consumer side, the Consumer Price Index (CPI) for January 2026 showed a 2.4% increase over the preceding 12 months. While this is down from the much higher levels seen previously, the unexpected rise in producer prices, coupled with the new geopolitical risks, complicates the path back to the Fed's 2% inflation target. The market's expectations for future rate cuts have shifted in response to these developments. The odds of a 25-basis-point cut at the March 18 Federal Open Market Committee (FOMC) meeting have fallen to just 2.6%. Analysts note that a sustained increase in energy prices could filter into broader pricing behavior, reinforcing a "higher for longer" stance from the central bank. This economic uncertainty is unfolding against a backdrop of varied forecasts for the year. Projections for 2026 real GDP growth range from 1.8% to 2.8%. Similarly, inflation forecasts for the year show some divergence, with the Congressional Budget Office projecting 2.7% inflation while other analysts expect it to be slightly higher.
