Inflation Pressured by Geopolitics Leaves Fed on Hold as Consumers Pay More at the Pump

Rising gasoline prices are feeding inflation, leaving the Federal Reserve unlikely to change interest rates this month despite a resilient labor market. The Fed’s benchmark rate sits between 3.5% and 3.75%, and according to the CME FedWatch tool, there’s a 97% chance it remains unchanged at the April 28 meeting. Traders assign just a 2.6% probability to a 25 basis point hike. Inflation over the past year has reached 3.3%, a figure increasingly shaped not by domestic demand but by energy prices. Those prices, in turn, are surging due to geopolitical instability centered on Iran. The country controls the Strait of Hormuz, a chokepoint for 20 million barrels of oil per day—20% of global supply. Escalating hostilities have disrupted shipping, tightened oil markets, and pushed pump prices higher. That spike in gasoline costs is now a direct input into inflation, constraining the Fed’s options. At the same time, the March jobs report added 178,000 nonfarm positions with unemployment steady at 4.3%, signaling economic strength. Together, persistent inflation and solid employment reduce the urgency for any monetary shift. Investors are pricing in stability, but economists like Mohamed El-Erian caution that erratic signals from policymakers or geopolitical developments could reignite volatility, eroding the Fed’s credibility in delivering predictable policy. The terminal consequence is this: consumers are paying more at the pump, and that cost is locking the Fed in place.