The Federal Reserve's decision to hold rates at 3.5% to 3.75% reflects a cautious response to rising uncertainty from the Iran conflict and higher oil prices. While the energy shock is expected to push inflation higher in the near term, policymakers emphasised it is too early to judge how persistent these pressures will be. Growth and labour market forecasts remain relatively stable, suggesting the US economy is still holding up despite external risks. Importantly, most officials still expect rate cuts later this year if inflation eases. At present, it remains difficult to assess the full impact of the shock, and markets appear to be adjusting expectations rather than signalling a downturn. This measured stance has helped limit volatility, with rate expectations shifting modestly and market moves remaining contained.