Article written by Matty Reiss, March 18th

The Fed is at its Wits' End

The Federal Reserve is sitting at one of the most contested monetary policy junctures in years. After cutting rates three times in late 2025, the central bank has pumped the brakes, holding its benchmark federal funds rate steady in a range of 3.5% to 3.75% at its January meeting. Traders are assigning a nearly 100% probability to the committee staying on hold at its March 18 decision as well. But the real battle isn't about this week; it's about what comes next. With inflation still stubborn, a weakening labor market, a leadership shakeup at the top, and a war in the Middle East reshuffling the deck, the question of whether, and when, the Fed will cut rates again has become one of the most fiercely debated topics in American economic life.

The Fed's Internal Split

The Federal Reserve is not speaking with one voice, and that internal discord is shaping the entire debate. Divided Fed officials at their January meeting indicated that further interest rate cuts should be paused for now and could resume later in the year only if inflation cooperates, with some members even entertaining the notion that rate hikes could be back on the table. The fault lines are clear. Cleveland Fed President Beth Hammack has argued that inflation is still too high to support cutting rates in the short term, while Chicago Fed President Austan Goolsbee has said additional cuts are possible this year if inflation eases. Fed Governor Stephen Miran has called for four quarter-point cuts in 2026 to support the labor market and stimulate productivity. Miran has dissented at each FOMC meeting he has attended since September, preferring more aggressive reductions than the committee has approved. At January's meeting, when the committee voted not to cut, Miran said he wanted a quarter-point reduction and expressed hope that his colleagues would come around. This deep division inside the committee makes predicting the Fed's path unusually difficult and unusually consequential.

The Iran War and the Inflation Wildcard

Just as some economists were penciling in a summer rate cut, a new and destabilizing variable entered the equation: the outbreak of conflict involving Iran and surging oil prices. Rising energy prices since the outbreak of the Iran war have led a number of forecasters to rewrite their interest rate predictions, with some economists saying there's a chance the Fed won't make any cuts at all this year. The concern is a classic stagflationary trap. Higher energy prices could ripple through the economy, pushing up transportation costs, food prices, and utilities, creating a dilemma for policymakers who face the challenge of ratcheting down inflation toward the Fed's 2% annual target while also propping up a labor market showing signs of fatigue. Traders have taken even a September cut off the table and now see only one coming in December, with no additional cuts priced in until well into 2027 or even the early part of 2028. For ordinary Americans, the stakes are deeply personal. A delayed rate cut could mean higher borrowing costs during an affordability crisis, sending many Americans scrambling to pay energy, grocery, shelter, and health care bills in a "low-hire, low-fire" labor market. 

The Leadership Question - Who Will Run the Fed Next?

Looming over everything is a historic leadership transition. President Trump nominated Kevin Warsh to become the next Fed chair, replacing Jerome Powell when Powell's term ends in May 2026. Warsh was a Fed governor from 2006 to 2011 and was known historically to favor holding rates higher for longer, though recent comments suggest a more dovish stance in line with the administration's preferences. The political dimension has grown impossible to ignore. Trump has publicly pressured Powell, posting on Truth Social that Powell "should be dropping Interest Rates, IMMEDIATELY, not waiting for the next meeting." Yet the Fed's independence remains a core principle and a point of tension. Some Fed insiders theorize that Powell may remain on the board after his chairmanship ends as a backstop against the president pushing the institution toward more aggressive easing than the data warrants. A Bloomberg survey of 46 economists still anticipates two quarter-point rate cuts by year-end, a more optimistic view than what markets are currently pricing. But with a new Fed chair incoming, a war reshaping the inflation outlook, and a committee deeply at odds with itself, the road to lower rates in 2026 is anything but straight.