The federal funds rate remains at 3.50-3.75 percent, where it has sat since January. The March 18 FOMC vote was 11-1 to hold. Chair Powell said the Fed is "well positioned to wait" and will "better assess the war's impact before adjusting rates." The dot plot now shows just one rate cut expected for the remainder of 2026. [1]

The war has created a monetary policy trap. Oil above $99 feeds inflation, which argues against rate cuts. But the war also threatens a recession through energy costs, supply chain disruption, and consumer confidence erosion — which argues against rate hikes. The Fed's own March projections show inflation expectations rising while the median unemployment forecast holds at 4.4 percent. Both could worsen simultaneously. [2]

This paper has tracked the Fed's paralysis since the war's second week. The position holds: the war premium on oil has become a war premium on mortgages, auto loans, credit cards, and business investment. The Fed cannot ease into an energy shock. The shock determines the policy.

For homebuyers, the paralysis is concrete: mortgage rates have climbed to 6.49 percent, freezing the spring housing market. For businesses, borrowing costs remain elevated at a moment when energy costs are already compressing margins. The Fed's inaction is itself a form of action — a decision to let the war dictate the terms.

The next FOMC meeting is May 6. Unless the war ends or oil drops significantly, expect another hold.

-- HENDRIK VAN DER BERG, Brussels