Federal Reserve Maintains Interest Rates as Iran Conflict Drives Global Market Volatility

The U.S. Federal Reserve held its benchmark interest rate unchanged for the second consecutive meeting on March 18, 2026, keeping the policy rate in the 3.50%-3.75% range as officials weighed rising inflation pressures against broader economic uncertainty. Fed Chair Jerome Powell pointed directly to the conflict in Iran as a factor affecting the economic outlook, citing its impact on oil prices and the wider economy. The decision came as European stock markets closed with mixed results, with Milan's Borsa Italiana ending the session down 0.33%, dragged lower by falls in Enel, Stellantis, and Campari. London's FTSE 100 posted the steepest decline among major European indices, falling 0.94%, while Paris's CAC 40 slipped just 0.06%.

Powell flags Iran conflict as economic risk factor Jerome Powell, who has served as chair of the Federal Reserve since 2018, made clear that geopolitical developments in the Middle East were weighing on the Fed's assessment of economic conditions. According to reporting by Europa Press, Powell stated that the Iran conflict will affect the economy, a notable acknowledgment of how military operations in the region are feeding into the central bank's deliberations. Oil prices rose on March 18 following an attack on Iranian facilities, according to ANSA, adding fresh upward pressure on energy costs globally. The Fed projected higher inflation and only a single rate cut for the full year 2026, according to web search results citing Reuters and Bloomberg, while unemployment was expected to remain steady. The FOMC left the policy rate in the 3.50%-3.75% range, a level it has now held across two consecutive meetings.

The Federal Reserve began an aggressive rate-hiking cycle in 2022 to combat surging inflation, raising rates to multi-decade highs before beginning a gradual easing phase. The current policy rate range of 3.50%-3.75% reflects a cautious approach to further cuts, with officials balancing inflation that remains above target against risks to growth. The U.S.-Israel military operation against Iran, known as Operation Epic Fury, began on February 28, 2026, and has introduced significant uncertainty into global energy and financial markets since its launch.

Milan's early gains wiped out by afternoon selling Milan's trading session on March 18 told a tale of two halves. Early in the day, the Borsa Italiana rose, lifted by strength in fashion and banking stocks, according to ANSA. However, sharp declines in Acea and De Nora weighed on the index during morning trading, and by the afternoon session the market had turned broadly negative. -0.33 (%) — Milan's Borsa Italiana closing decline on March 18 Enel, the Italian energy giant, Stellantis, the multinational automaker, and Campari, the beverages group, all saw their shares fall by the close. The session reflected broader uncertainty across European markets as investors digested the Fed's rate decision and rising oil prices tied to the Iran conflict.

London FTSE 100: -0.94, Milan Borsa Italiana: -0.33, Paris CAC 40: -0.06

Energy and industrial stocks bear the brunt of market pressure The declines in Acea and De Nora during the morning session were described by ANSA as sharp plunges, standing out even as other parts of the Milan market were still rising. Acea, the Italian public utility holding company active in water, environmental, and energy sectors, and De Nora, which specializes in electrochemical industrial processes, both suffered notable losses. By the close, the selling had broadened to include Enel, one of Italy's largest energy companies, reflecting the sensitivity of the energy sector to rising oil prices. Stellantis and Campari rounded out the list of notable decliners, spanning automotive and consumer goods sectors. London's FTSE 100 suffered the largest percentage drop among the three major European markets tracked, falling 0.94%, while Paris managed to limit losses to just 0.06%. The divergence across European markets suggested investors were selectively pricing in geopolitical and monetary policy risks rather than reacting uniformly to the day's developments.