The Federal Reserve and European central banks elected to keep interest rates on pause this week, as oil prices raise inflation risks. Last year’s concerns inside the Fed around the health of the labor market have largely given way to uneasiness over higher energy costs and uncertainty over the duration of the Iran conflict. Brent crude futures have pushed higher, briefly rising to about $126 per barrel during Thursday’s trading session, amid an ongoing blockade of Iranian ports. The personal consumption expenditures (PCE) price index rose 3.5% year-over-year in March, up from 2.8% a month earlier and the highest mark in nearly three years, according to the U.S. Commerce Department on Thursday. Excluding food and energy, core PCE inflation was up 3.2%. Meanwhile, growth proved durable with U.S. GDP expanding at a 2% annualized rate in the first quarter, compared with 0.5% in the fourth quarter of 2025.

With oil’s impact now in focus, Fed rate cuts in 2026 could be viewed as less likely than before. Three officials on the Fed’s policy committee wanted to drop language from the post-meeting statement that suggests a bias toward easing, while another official would have supported a rate cut. The four dissenting votes on Wednesday were the most at a Fed meeting since 1992. As for market participants, they foresee no change in the Fed’s benchmark rate through at least the end of this year, according to the CME Group’s FedWatch Tool. The Bank of England and European Central Bank also left its policy rates unchanged in separate decisions on Thursday. In its statement, the BOE noted that the oil shock threatens to feed inflation while weakening economic activity.

The Fed meeting was Chair Jay Powell’s curtain call as head of the central bank, although he announced plans to remain on the Board of Governors for the time being. The Senate Banking Committee voted on Wednesday in favor of Kevin Warsh’s nomination to serve as Chair. The full Senate is expected to conduct a final vote in mid-May. PGIM’s Weekly View from the Desk considers the implications of a Warsh-led Fed, including potential shifts in monetary policy, inflation assessments, and the central bank’s balance sheet.