The Federal Reserve on Wednesday held interest rates steady, as the U.S.-Israeli war with Iran disrupts the global economy and sends oil prices soaring.

Two weeks after the initial attacks, unleaded and diesel gas prices have skyrocketed alongside the cost of oil.

Attention now turns to how Chair Jerome Powell and policymakers decide to respond to the growing Middle East oil crisis. Investors and consumers hoping for interest rate cuts will be on the edge of their seats when Powell steps up to the lectern at the central bank’s headquarters at 2:30 p.m. ET.

Traditionally, central bankers “look through” or discount short-term spikes in gas and oil prices until they impact the price of other goods. Instead, they primarily focus their attention on “core inflation,” a number that excludes the more volatile food and energy prices.

That may not be possible this time, however. The already weakened state of the economy even before the conflict in the Middle East has increased Americans’ vulnerability to a domino effect of higher costs that begins with skyrocketing gas prices.

“The implications of developments in the Middle East for the U.S. economy are uncertain,” the Fed said in its statement.

The Fed’s policymakers also released fresh economic projections, showing they still expect one benchmark interest rate cut in 2026 and another in 2027.

Officials on the Fed’s Open Market Committee, which votes on the trajectory of rate cuts, now see core inflation hitting 2.7% by the end of the year, up slightly from its December forecast.

They also said they see U.S. economic output, or GDP, at 2.4% this year, up one tenth of a percent from their last projection.

The only official to vote against keeping rates unchanged was President Donald Trump's nominee Stephen Miran, who sought a 0.25% cut.

When the United States and Israel attacked Iran on Feb. 28, the Islamic Republic responded in part by blockading the Strait of Hormuz, a crucial transit route for oil from the Middle East.

Overnight, the cost of crude oil soared. The price of gasoline quickly followed.

As of Wednesday, U.S. crude oil prices are up more than 40% and the average retail price of unleaded gas in the country had risen more than 75 cents a gallon since the war began.

The diesel fuel that powers the ships, trucks and trains along America's domestic supply chain topped $5 a gallon Tuesday for the first time since 2022.

It’s not just oil and gas prices that are rising. The cost of jet fuel has soared, too, as has home heating oil.

Meanwhile, American consumers are already frustrated by the high cost of living. And news headlines about mass corporate layoffs reinforce the view that the U.S. labor market is in a fragile state.

“The vulnerable labor market faces more downside risks too, even as energy prices may point to higher headline inflation ahead,” UBS economists recently wrote.

The Fed’s dual mandate, established by Congress, is to maintain maximum employment while keeping prices stable over the long term.

“Powell will have his work cut out for him,” Bank of America analysts wrote.

While the unemployment rate only ticked up fractionally in the most recent jobs report, overall the report showed a loss of 92,000 jobs for February. It also contained sharp downward revisions to January and December’s jobs reports.

Inflation, meanwhile, remains sticky, having come in at 2.4% in both January and February. That’s after falling from 3% in September.

Complicating the economic forecast further is a new jolt of tariff uncertainty brought on by the Supreme Court's Feb. 20 ruling that struck down many of Trump’s sweeping country-based tariffs.

Trump replaced those with a short-term global 10% tariff that he promised to raise to 15%, but so far has not.

In the meantime, the administration has quickly initiated dozens of probes into key trading partners, setting the stage for another wave of tariffs later this year.

As Powell and the Fed work to navigate the complicated economic situation, the independent agency is also facing a set of political challenges that have no precedent in modern American history.

In a case whose outcome could dramatically alter the independence of the Federal Reserve, the Supreme Court has heard oral arguments — but has yet to rule — on the future of Fed governor Lisa Cook, whom Trump has attempted to fire.

Also in legal limbo is a Justice Department probe into Powell and his testimony to Congress about Fed headquarters renovations.

Lawmakers on Capitol Hill were outraged to learn of the investigation, which Powell says is nothing more than an effort to pressure him into bowing to Trump's demand that he back interest rate cuts at the Fed.

Until the probe is dropped, North Carolina Republican Sen. Thom Tillis has vowed to block the confirmation of the president’s pick to replace Powell as chair, economist Kevin Warsh.

Tillis met with Warsh recently in Washington and praised his qualifications, but he said the “bogus investigation” of Powell would nonetheless need to be dropped before Warsh’s confirmation process would move forward.

Powell’s second term as chair expires in May. Under normal circumstances, this March meeting would be his second to last in that position.

But it's not clear yet when Warsh might be confirmed. The Justice Department has vowed to fight a federal judge's order last week that effectively ended the probe into Powell.

If Warsh still has not won Senate confirmation by May, then Powell will stay on in his current role as chair of the Fed’s rate-setting committee, at least until a nominee to replace him is approved by the Senate.

This article was originally published on NBCNews.com