Fed Rate Cut Pushed to September on Iran Oil Shock
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- The Federal Reserve will hold rates at 3.50%-3.75% on March 18 according to all 96 economists in a March 6-12 Reuters poll, with the prior survey seeing only three-quarters expecting a hold.
- A ~40% surge in global oil prices tied to the Iran conflict has lifted the rate-sensitive two-year Treasury yield by nearly 30 basis points, and rate-cut futures have shifted from June to September, pricing out a second 2026 cut entirely.
- 63 of 96 economists still expect the Fed to cut to 3.25%-3.50% next quarter, most likely in June right after Jerome Powell's term ends, with Trump having nominated Kevin Warsh as the next chair to execute faster cuts.
- PCE inflation is forecast to average 2.8% in H1 2026 and 2.7% for the full year — a slight upward revision — with PNC's Gus Faucher noting inflation 'has not been at the 2% objective in five years' and that the inflation risk now exceeds the labor market risk.
- Nearly 40% of economists expect just one rate cut or none this year, roughly double the share predicting three or more, and 29 of 37 in a sub-question said the Fed is more likely to hold longer than expected rather than cut sooner.
- U.S. GDP is forecast to grow 2.1%-2.5% per quarter through 2026, above the Fed's 1.8% non-inflationary pace, while unemployment is expected to stay flat at 4.4% — giving the Fed no urgency to ease.
Why it matters: With the first cut pushed from June to September, Trump loses his preferred pre-midterm easing window unless incoming Chair Warsh can override a committee that 80% of economists say is more likely to hold longer than expected. The Iran-driven oil shock is the decisive variable: it keeps PCE inflation 70-80 basis points above target, and with the economy already growing above its non-inflationary rate, the Fed has cover to sit on its hands until the energy pass-through fades.
