The Federal Reserve is widely expected to maintain its current interest rate range of 3.50 percent to 3.75 percent at its upcoming two-day policy meeting, which begins Tuesday. This meeting may be the last chaired by Jerome Powell, as his successor faces a challenging confirmation process amid ongoing geopolitical tensions and economic uncertainties.

The backdrop for the Fed’s decision includes persistent high energy prices and disrupted supply chains linked to the conflict in the Middle East. Since late February, after U.S. and allied strikes targeting Iran, Tehran has effectively closed the Strait of Hormuz, a critical passage for oil and fertilizer shipments. This disruption has led to sustained energy cost increases that have contributed to inflation pressures in the United States. Consumer inflation reached 3.3 percent in March, marking the highest level in nearly two years.

Economists note that the Fed’s dual mandate to balance price stability and low unemployment has become more complex as these external shocks exert opposing influences. Rising energy costs urge caution against rate cuts, while concerns about the labor market's strength persist. However, recent solid hiring trends may give policymakers some leeway to focus on taming inflation without immediate concerns over employment.

Fed Governor Christopher Waller has indicated that the ongoing conflict could make it difficult for the central bank to lower rates this year. He emphasized that if inflation risks dominate over those to the labor market, maintaining current rates might be necessary. Industry experts anticipate that Powell will adopt a cautious stance in communicating future rate paths, reflecting uncertainty around the full economic impact of the Middle East conflict.

Market watchers will be closely scrutinizing the Fed’s post-meeting statement for any indications of possible rate hikes ahead. While the central bank has maintained a pause in rate increases since early 2026, the evolving geopolitical situation leaves the future policy trajectory uncertain.

The Fed is also operating under heightened political pressure. President Donald Trump has publicly criticized the Fed’s approach and has pushed for lower interest rates. Additionally, Trump has taken legal steps to remove Fed Governor Lisa Cook, an action currently pending with the Supreme Court. These dynamics add complexity to the Fed’s efforts to navigate monetary policy in a challenging environment.