Key Points

  • The Federal Reserve said Wednesday that uncertainty stemming from the war with Iran has prompted U.S. businesses to delay hiring, pricing, and capital investment decisions, while pushing up costs for energy and petroleum-based products such as plastics and fertilizers.
  • In its so-called "Beige Book" survey of economic conditions across 12 districts, the Fed said overall price pressures remained moderate, with input costs rising faster than selling prices, squeezing profit margins. Economic activity "grew at a slight to modest pace."
  • "The conflict in the Middle East was cited as a primary source of uncertainty, complicating hiring, pricing, and capital investment decisions, with many businesses adopting a wait-and-see stance," the Fed said.

Deeper Insights

At their latest meeting on March 17-18, a growing number of Fed officials expressed concern that the war with Iran could intensify price pressures, while noting the central bank may need to raise its benchmark interest rate to prevent inflation from rising further above its 2% target—according to minutes released on April 8.

Several policymakers have said in recent weeks they intend to take a "wait-and-see" approach to borrowing costs, holding the main interest rate in a range of 3.5% to 3.75% until they see a need to either cool inflation or stimulate growth to avoid a rise in unemployment.

"My baseline is that we will hold steady for a while, but I do think there are risks that we may need to be either more accommodative or more restrictive," Cleveland Fed President Beth Hammack said Wednesday in an interview with CNBC.

Hammack declined to forecast when the Fed might adjust monetary policy. "I think it's too early to say, and we've had a series of supply shocks over the past few years," she said, referring to events such as the surge in fuel prices since the war with Iran began, tariffs imposed in April 2025, and the sharp drop in economic activity during the pandemic.

Based on median projections, Fed officials at their March meeting expected to cut the main interest rate by 25 basis points this year.

International Monetary Fund Managing Director Kristalina Georgieva said Wednesday that central bank policymakers should avoid raising interest rates prematurely due to inflationary pressures from the war with Iran. Premature tightening could dampen economic growth, she said.

"It's important for central banks to act cautiously," she told Bloomberg Television. "Those central banks with strong credibility can afford a wait-and-see stance," she added, "but they must also signal: 'We are ready to act if necessary.'"

The IMF projected Tuesday that the U.S. economy could grow 2.3% this year, a downward revision of 0.1 percentage point from its January forecast, due to the impact of the war.

However, with each passing week, the probability of the worst-case scenario increases—that oil prices average $110 per barrel and global growth falls below 2%—IMF Chief Economist Pierre-Olivier Gourinchas said at a press conference Tuesday.

According to the Beige Book, the economies of the Fed's 12 districts were not without bright spots. The Beige Book is based on information collected before April 6.

"Manufacturing activity grew at a slight to modest pace in most districts," while the banking sector remained stable, with "loan demand steady to moderately up," the central bank said.

Additionally, despite higher fuel prices and severe cold weather in some regions, consumer spending rose slightly, the Fed said.

Meanwhile, "many districts continued to report signs of financial strain among consumers, increased price sensitivity, and rising demand at food banks and other social service organizations, while spending among higher-income consumers remained resilient," the central bank said.

Many consumers are suffering from high inflation caused by the war with Iran, Hammack said. Consumers "feel the pressure of gasoline prices every time they fill up, and that really weighs on them," she said, noting that groceries that cost $100 five years ago now cost $120.