Job Losses and Soaring Energy Prices Force Fed to Hold Rates Steady As Stagflation Warnings Grow

Job Losses and Soaring Energy Prices Force Fed to Hold Rates Steady As Stagflation Warnings Grow

Today, the Federal Reserve held the federal funds rate at 3.50% to 3.75%. The decision comes amid mounting signs of strain in the economy: the labor market is shedding jobs, energy prices are surging as a result of Trump’s war in Iran, and recent GDP growth was revised down by 50%. Together, these pressures are pushing the economy toward a stagflation trap of weak growth and persistent inflation, tying the Fed’s hands, and ultimately hurting American workers and consumers.

Alex Jacquez, Chief of Policy and Advocacy at the Groundwork Collaborative, issued the following reaction:

“Inflation is accelerating as the labor market deteriorates, and Trump’s war in Iran is pushing prices even higher while squeezing working people. The coming price shocks are a direct result of the president’s decisions, and as American families pay the price of his military adventurism and economic mismanagement, the Fed has limited room to respond.”

Background

• Trump’s war in Iran raises new inflation concerns. During his press conference, Chair Powell said the Fed is tracking the economic impact of the Middle East conflict. The Personal Consumption Expenditures (PCE) index rose 2.8% in January, above the Fed’s 2% target, and the Fed now expects inflation to run even higher this year, with its latest projections showing prices rising faster than previously forecast. Producer prices are already climbing, with wholesale inflation at 3.4%, pointing to more price increases ahead. Much of this data predates the war in Iran, and does not yet capture the resulting increase in energy costs. U.S. intelligence officials reportedly don’t see an end to the war until at least September, raising the risk that higher energy, fertilizer, and other commodity prices ripple through transportation, shipping, and food supply chains, causing price pressures through at least through the end of the year.
  • The Fed’s own Beige Book shows families are already under pressure from rising prices. In one region, households are selling clothes, scrapping metal, tapping savings, and cutting back on basic spending just to make ends meet. Trump’s war in Iran will only make these pressures worse for working families.
• The labor market is losing jobs. The economy lost 92,000 jobs in February, according to the latest employment report from the U.S. Bureau of Labor Statistics. Revisions to earlier data also show that 2025 recorded five months of labor market contraction, the most frequent job losses in a single year since 2010.
• More warning signs are emerging across the economy. Last quarter’s GDP growth was revised down to 0.7%, roughly half the 1.4% growth initially reported. As the economic outlook worsens, Goldman Sachs has raised its inflation forecast and lowered its GDP outlook, putting recession odds at 25%. The Fed kept its growth and labor market forecasts mostly intact, but warned that uncertainty is rising and risks are stacking up toward slower growth, higher inflation, and a weaker labor market.