Fed policymakers shift toward interest rate hikes as gas prices drive inflation

Investors no longer expect a rate cut until late 2027. This shift in market expectations follows a change in sentiment among Federal Reserve policymakers. Between the January and March meetings, the number of officials willing to consider an interest rate hike this year rose from "several" to "some."

This change was driven by higher gas prices resulting from the Iran war, which officials noted could keep inflation elevated for longer than expected. The Fed kept its key rate unchanged at approximately 3.6% at its March meeting, having previously cut rates three times at the end of 2025. Chair Jerome Powell stated that any further reductions depend on underlying inflation cooling steadily this year.

The Fed targets a 2% inflation rate. Economists forecast that March inflation will rise 3.4% compared to a year earlier, up from 2.4% in February. Beth Hammack, president of the Federal Reserve Bank of Cleveland, noted that inflation has run above target for more than five years.