Why Oil Prices Complicate the Fed’s Balancing Act: Explainer

When the US Federal Reserve sets interest rates, the process typically involves striking a balance between two goals, price stability and full employment. A sharp increase in energy prices as a result of the Iran war and a rise in the unemployment rate in February risks putting those two goals into conflict. That’s likely to prompt Fed officials to hold interest rates steady at their March 17-18 meeting, though the changes in economic conditions could drive more divisions over which of the two priorities — inflation or employment — is more important.

What is the Fed’s balancing act?

Since 1977, ...