(Alliance News) - The US Federal Reserve is expected to hold its benchmark interest rate steady on Wednesday, with subsequent holds likely throughout the summer as inflation uncertainty persists due to the Iran war.

The Federal Open Market Committee meeting kicks off on Tuesday. A decision from the US central bank comes at 19:00 BST on Wednesday, followed by a press conference with Chair Jerome Powell, his last leading the FOMC.

A hold at this month's meeting would keep the federal funds rate target range at 3.50-3.75%. It would be the Fed's third consecutive hold. It cut by 25 basis points in September, October and December.

With the decision all but certain, Oxford Economics says it will be looking for "any sign that the FOMC's assessment of the balance of risks to the economy has changed."

"We think that balance has shifted since March, with the downside risks to the labour market slightly reduced. The shift in our thinking doesn't reflect the latest batch of data: Inflation numbers have registered the spike in oil and gas prices, while other statistics show a resilient consumer and stable labour market.

"We always expected that the war's spillover effects would take longer, but with conditions in the Middle East more stable, we think the damage done to growth and the labour market is likely to be more modest," Oxford Economics commented.

Earlier this month, the US Bureau of Labor Statistics said nonfarm payrolls increased by 178,000 in March, skating past the FXStreet-cited forecast of 60,000 additions.

133,000 jobs were shed in February, however, revised from the initially reported decline of 92,000. Positively, January's number was revised up by 34,000 to 160,000 from 126,000.

The unemployment rate declined to 4.3% in March from 4.4% in February, where it had been expected to remain.

Pantheon Macro thinks the report may lead the FOMC meeting statement to say job gains have been "moderate" rather than "remained low".

However, Pantheon warns that the FOMC may "acknowledge that economic activity has been expanding at less than a 'solid' pace," noting the downward revision to the fourth quarter GDP growth estimate.

Despite markets currently pricing a 65% chance of no change in policy this year and 30% chance of a 25bp easing, Pantheon still expects a total rate reduction of 75bp in 2026.

"We still think most FOMC members will see a strong case for easing policy again later this year, when core PCE inflation will be falling, the unemployment rate will be higher than today, and fiscal policy no longer will be a tailwind," says Pantheon.

Oxford Economics believes AI-driven layoffs remain a threat. In recent days, media outlets have reported planned job cuts at Meta Platforms Inc and Microsoft Corp, while Rogers Communications Inc on Monday offered to buy out up to 10,000 employees.

"While layoffs economy-wide remain low, layoffs in the information sector have increased, with some companies explicitly tying the reductions in headcount to AI," Oxford said.

The April meeting will be the last led by Federal Reserve Chair Jerome Powell, who was first nominated by Trump in 2017. Powell may choose to retain his governorship until his term expires in 2028, however.

If Powell chooses to remain, his successor Kevin Warsh would be installed in the seat of recently-appointed Stephen Miran, leaving US President Donald Trump without his desired dovish shift of the committee.

The March retail sales print provided further encouraging data ahead of the meeting.

Last week, the US Census Bureau said retail sales increased 1.7% in March from February, beating the FXStreet-cited forecast of a 1.4% climb. In February, they rose 0.7% from January, upwardly revised from a 0.6% climb.

However, the rise was partly due to the sharp rise in gasoline prices amid war in Iran, as was the hike in the March consumer price index.

CPI inflation rate accelerated to 3.3% in March, in line with the FXStreet-cited consensus, from 2.4% in February.

The gasoline index increased 21.2% over the month, the largest monthly increase since the series was first published in 1967, which accounted for nearly three-quarters of the monthly all-items increase.

Core inflation, excluding food and energy, was up 2.6% on-year in March, higher than 2.5% in February, but below the consensus of 2.7%.

Analysts expect the rise in energy to be transitory, unlike the 2022 price hike spurred on by the Russian invasion of Ukraine.

"We have much greater confidence that inflation will be transitory this time around, given the lack of demand impetus and weaker corporate pricing power versus 2022," analysts at ING wrote earlier this month.

As the inflationary effects of Trump's tariff regime dissipate, ING believes that the economy has handled tariffs "well, with limited goods price inflation", noting that core goods prices (ex-food and energy) remain "benign".

Additionally, markets continue to expect that the US-Iran conflict will resolve sooner rather than later, providing energy cost relief.

But Oxford Economics expects inflation "to remain higher for longer, due largely to the AI buildout."

"We expect to push the rate cuts in our forecast - currently pencilled in for June and September - further into the future in our May baseline."

Barclays expects the FOMC to hold rates steady until September, where it will deliver a 25bp cut. It sees another reduction in March 2027, "supported by a further moderation in inflation."

"Our view assumes a moderation in [month/month] core inflation prints in the coming months, with oil prices declining broadly in line with WTI futures...We see risks to our baseline view as skewed toward higher inflation and delayed rate cuts, and expect the FOMC's reaction function to be little changed under a Warsh Fed, if confirmed," analysts at Barclays commented.

However, Barclays warned that the FOMC could delay cuts if the conflict in the Middle East drags on.

It said the FOMC could cut rates "rapidly and aggressively" if "the unemployment rate could rise suddenly - eg, as a result of the sharp rise in energy prices and the adverse effects on aggregate demand, overall activity and employment."

Both Pantheon and Barclays expect a dissent from Miran, who will vote in favour of a 25bp cut.

Regarding Powell's press conference, Barclays expects the chair "to sound somewhat hawkish," and "to no longer emphasise that the base case involves additional rate cuts."

"However, we expect him to say that if inflation moderates or the labour market weakens notably the FOMC would likely cut rates. In discussing the extent to which the FOMC would be looking through the impact of oil price increases, we expect Powell to say that this would depend on the persistence of the shock, and whether the FOMC starts to see evidence of second-round price increases," it added.

By Aidan Lane, Alliance News reporter

Comments and questions to newsroom@alliancenews.com

Copyright 2026 Alliance News Ltd. All Rights Reserved.