Read more:\u00a0March CPI breakdown: Iran war sends gas prices skyrocketing, airfare climbing<\/a><\/p>\n Mester said she thinks the Fed needs to be cautious about that bleed-through. \u201cThat\u2019s what they\u2019re going to focus on at this meeting,\u201d she said.<\/p>\n The Fed hasn\u2019t changed its bias away from rate cuts, and officials haven\u2019t seriously considered raising rates either.<\/p>\n \u201cI think what this does for them is to say, \u2018We\u2019re going to just have to stay on hold and kind of look for a window to cut,\u2019 because they haven\u2019t really changed that bias in their calculation,\u201d George said. \u201cI still think the Fed Funds Rate is slightly elevated, and so I think it puts them on hold if not for the whole year, at least well into the second half.\u201d<\/p>\n Fed officials are looking at inflation measures to gauge how broad-based the inflationary pressures from the recent oil price increases are. Officials are willing to look through an uptick in inflation if it\u2019s limited to gas prices.<\/p>\n \u201cIf it\u2019s just higher gasoline prices, I don\u2019t think that shifts the bias, though it may keep them on hold longer,\u201d George said. \u201cIt\u2019s really looking [at] where else are we seeing inflation picking up.\u201d<\/p>\n Read more:\u00a0What an extended war with Iran could mean for gas prices<\/a><\/p>\n Mester said she expects a bigger impact on inflation over the next several months, even after the Strait of Hormuz opens, because it\u2019s going to take some time for the oil to get to its destination.<\/p>\n \u201cWith several more months of elevated inflation, the question that the committee has to confront is, should they be looking through that or should they be really entertaining that this could be longer lasting and feed into underlying inflation,\u201d she said.<\/p>\n One of the lessons the Fed gleaned from the pandemic is that just because higher inflation is driven by a supply shock doesn\u2019t mean it will be short-lived.<\/p>\n Since the pandemic, tariffs have pushed up the prices of goods, leading to higher overall inflation. Now, oil prices threaten to push up overall prices. The Fed\u2019s campaign to lower rates has been based on the premise that inflation is on a downward trajectory and that one-off events, like tariffs or an oil shock, are ones that the central bank could look through.<\/p>\n Read more: It’s not just gas prices. How the Iran war is coming for your grocery bill.<\/a><\/p>\n Fed governor Chris Waller, who has favored rate cuts, recently questioned when, after a series of one-time shocks, inflation becomes persistent rather than a one-time increase.<\/p>\n The Fed has also taken comfort in long-term inflation expectations remaining low. But with inflation remaining above the Fed\u2019s 2% goal for five years, tariffs pushing up goods prices, followed by the oil shock from the Middle East conflict, the question is how can people\u2019s long-term expectations for inflation remain around 2%.<\/p>\n \u201cRemember this whole campaign for the last five years has been premised on inflation expectations are well anchored, and I just think that\u2019s getting to be a shakier platform as we go forward with an inflation rate that was already higher,\u201d George said.<\/p>\n Luke Tilley, chief economist at Wilmington Trust, also expects the Fed to hold the line again on Wednesday. But he cautioned that the longer the conflict lasts and energy prices remain high, the greater the chance that higher prices will hurt economic growth more than cause higher inflation.<\/p>\n Tilley noted that through April 15, tax refunds were up 20% to $45 billion from last year, but daily gasoline usage was eating up about a third of the refunds, reducing the stimulative impact on the economy. That doesn\u2019t include businesses that are paying for higher diesel fuel costs.<\/p>\n And while markets have taken any rate cuts off the table for the year, Tilley still sees three cuts this year that could start as soon as July, because he thinks higher energy prices will hurt consumer spending, dampening growth.<\/p>\n \u201cIf you don\u2019t have strong enough growth or strong enough consumers, then you can\u2019t have enduring inflation because they will spend less,\u201d Tilley said. \u201cThey will cut back. Firms will see that. They will cut jobs, but they\u2019ll also stop pushing through the price increases to try and preserve their market share, and you get slower inflation.\u201d<\/p>\n He added, \u201cAll of the supply components are there to push up prices, and none of the demand components are there.\u201d<\/p>\n He said the story for the Fed this year is a repeat of last year. A year ago, Tilley said tariffs would hurt growth and the Fed would end up cutting later in the year. The Fed held rates last year through the summer, then cut rates three times last fall. He expects a similar playbook this year, only with higher oil prices as the catalyst.<\/p>\n \u201cYou could replace the word oil with tariffs,\u201d Tilley said.<\/p>\n But Mester said the Fed will have to be careful about resuming rate cuts prematurely.<\/p>\n \u201cIf I were them, I would need to see much more convincing evidence that we\u2019ve gotten beyond the upside factors supporting higher inflation \u2014 and I\u2019ve not seen inflation actually moving down on its path towards 2% \u2014 before I\u2019d be comfortable resuming rate cuts,\u201d she said.<\/p>\n This week\u2019s meeting will potentially be Jerome Powell\u2019s last as chair of the Fed. If his successor, Kevin Warsh, is not confirmed by May 15, the official end of Powell\u2019s term, Powell has said he will stay on as chair pro tem.<\/p>\n A major obstacle to Warsh\u2019s confirmation was cleared Friday when the Justice Department dropped a criminal investigation of Powell and referred the matter to the Fed\u2019s Inspector General. Warsh had no path to confirmation in the Senate with that criminal probe unresolved. Powell could still remain at the Fed after next month as a governor.<\/p>\n \u201cThe Fed is going to sit tight,\u201d said Wilmington Trust senior bond fund manager Wil Stith. \u201cThey\u2019re going to say the exact same thing as last meeting. Powell wants to leave Warsh with as much flexibility as he can.\u201d<\/p>\n Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms<\/a> and on Instagram<\/a>.<\/p>\n Click here for the latest economic news and indicators to help inform your investing decisions<\/a><\/p>\n Read the latest financial and business news from Yahoo Finance<\/a><\/p>\n ![\"Kansas](\"https:\/\/www.europesays.com\/iran\/wp-content\/uploads\/2026\/04\/07bb9155-5cd8-45a5-8dad-cbfeb0714219.jpeg\")
Former Kansas City Federal Reserve Bank president Esther George addresses the National Association for Business Economics in Denver on Oct. 6, 2019. (Reuters\/Ann Saphir) \u00b7 REUTERS \/ REUTERS <\/p>\n Gas prices are displayed at a station in Manhattan on April 21, 2026. According to a Commerce Department report on Tuesday, retail sales in March rose 1.7% due to higher gas prices. (Spencer Platt\/Getty Images) \u00b7 Spencer Platt via Getty Images <\/p>\n