As expected, the Fed kept rates on hold Wednesday following what I imagine was a difficult, if still mostly congenial, two-day policy meeting.

Unlike the January gathering, Chris Waller didn’t join Stephen Miran in dissenting for a 25bps cut. (Miran’s ad hoc term technically ended weeks ago, but he’s hanging around pending a resolution to Kevin Warsh’s stalled confirmation.)

Despite the uniformity conveyed by the vote count (Miran’s a shill, so Wednesday’s decision was basically unanimous), this remains a divided Committee. The introduction of an oil supply shock into an already convoluted macro backdrop doesn’t help.

Hours before Wednesday’s decision, the BLS said wholesale inflation was far warmer than anticipated in February and oil surged after Iran blamed Israel for fires and damage at the South Pars gas field.

The new statement contained an obligatory reference to the war. “The implications of developments in the Middle East for the US economy are uncertain,” the Committee said, in the course of reiterating that risks to the dual mandate remain two-sided.

“Job gains have remained low, and the unemployment rate has been little changed in recent months,” the Fed said, of the labor market. The statement described the overall economy as “expanding at a solid pace” and inflation as “remain[ing] somewhat elevated.” All of that’s essentially unchanged from January. The forward guidance was verbatim from the last statement.

The new dot plot still tipped one cut for 2026, but as discussed in the March FOMC preview, that should be taken with an even bigger grain of salt than usual considering the upcoming change in leadership and the totally indeterminate nature of the macro outlook. Prior to the war, markets had fully priced two cuts with about even odds of a third. On Wednesday at noon, those contracts reflected just 20bps of easing.

The SEP contained an upward revision to the core inflation forecast for 2026 which is now 2.7% versus 2.5% in December. The growth outlook was revised up across the forecast horizon, while the unemployment projections were basically unchanged (2027’s projection moved up by a tenth to 4.3%).

On the whole, the outcome of Wednesday’s decision suggests concerns over upside risks to persistently-elevated inflation narrowly outweigh downside risks to the US labor market in the Fed’s estimation. But it’s a close call. As it should be. Core inflation’s elevated and headline price growth will pick up the energy shock in the months ahead. But the US economy shed jobs in February, on the BLS’s reckoning.

I’d be remiss not to note that putting too much emphasis on (uncontrollable) inflation risks from an energy shock at the expense of protecting jobs when elevated gas prices threaten to undermine demand is a policy mistake in the making.

“Given how volatile energy and commodity prices can be, monetary policymakers are justified in looking through moves in oil and gas — or simply viewing them as a tax on the consumer,” BMO’s Ian Lyngen said Wednesday. “In the event the US is facing >$100/bbl oil throughout 2026, the Fed would clearly be having a much different conversation [and] that is the risk triggered by the war in Iran — that the energy complex has been rebased to a higher plateau.”