The United States (US) Federal Reserve (also known as the Fed) has decided to leave interest rates unchanged, reflecting a cautious approach as inflation remains above target and global conditions remain uncertain.

The benchmark rate remains in a range between 3.5% and 3.75%. Headline inflation stood at 2.4% in February, while the Fed’s preferred core Personal Consumption Expenditures measure was 3.1%, still above the 2.0% target. This gap, as much as anything else, continues to guide policymakers toward a wait-and-see approach.

Energy price spikes on the back of the Iran war have added to that caution and will feed concerns around the fact that the two-year break-even inflation rate has risen to 3.2%, up from 2.9%, indicating a modest increase in inflation expectations.

At the same time, there remains uncertainty over how long these pressures will persist. Should geopolitical tensions ease, oil prices may stabilise, reducing some of the upward pressure on inflation.

Australia’s rate hike decision this week sent a powerful signal on the level of concern among some central bankers.

Looking deeper into the year, the rates outlook is complicated by the elevation of Kevin Warsh as Fed chair (he is expected to take up the position in May). The Trump administration spent a lot of 2025 trumpeting lower interest rates but Warsh built his reputation on as an “inflation hawk” during his 2006-to-2011 tenure as a Fed Governor, where he warned consistently about the risks of aggressive stimulus.

Adding a Warsh chairmanship to the Iran War oil price spike would seem to suggest that caution will be the chief Fed policy direction through 2026.

However, The Common Sense has developed a series of Iran War scenarios, the balance of which conclude that there could be near-term stabilisation of global oil flows. Based on these, on the balance of probabilities, these scenarios still expect the Fed to lower rates by 50 basis points over the course of the year.

In South Africa, similar conditions are in play. With inflation risks still present and global rates steady, The Common Sense expects the South African Reserve Bank to leave rates unchanged at its meeting next week and then cut by 50 basis points over the balance of the year taking its lead from the Fed.