The decision comes after inflation ‘remains somewhat elevated’
The US Federal Reserve has decided to keep its primary interest rate unchanged, sitting at 3.50 to 3.75 per cent as officials work through inflation figures that have come in hotter than expected, an uneven labour market picture, and the complications of an ongoing Middle East war.
In a move that was broadly anticipated, the Federal Open Market Committee voted 11-1 to hold the benchmark federal funds rate on Wednesday. The rate directly determines overnight borrowing costs for banks but also has a ripple effect across a wide array of consumer and business lending rates.
“Available indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, and the unemployment rate has been little changed in recent months. Inflation remains somewhat elevated,” the Fed stated in its office release.
“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated… The Committee is attentive to the risks to both sides of its dual mandate,” the central bank added.
Even amid the considerable uncertainty, policymakers indicated that they still foresee a limited number of rate reductions on the horizon, although the precise timing has yet to be determined.
The committee's post-meeting statement reflected only slight revisions to its economic assessment, incorporating marginally stronger growth expectations and modestly higher inflation forecasts for the entirety of 2026.
Out of the 19 FOMC participants, seven indicated they expect rates to remain where they are through the end of this year - one more than in the previous December update, as reported by CNBC. Projections for subsequent years were spread across a relatively broad range, but the median estimate calls for one additional cut in 2027, after which the funds rate is expected to level off near 3.1 per cent over the longer term.
The statement also acknowledged the uncertainty stemming from the war with Iran, which began roughly three weeks ago. The conflict and its effects on shipping through the Strait of Hormuz have disrupted global oil markets and raised the risk that inflation will remain above the Fed's 2 per cent goal.
Trump still wants rate cuts
The decision also notably comes amid a complex political landscape as President Donald Trump has continued to pressure Powell and his fellow policymakers to reduce interest rates.
Earlier this week, Trump publicly criticized Powell for failing to convene an emergency meeting to lower rates, even as inflation remains elevated and the economic consequences of the war are still uncertain.
Meanwhile, Powell led what may be his second-to-last meeting as chair of the central bank. His tenure is scheduled to conclude in May, and Trump has nominated former Fed Governor Kevin Warsh to take over the role. Warsh has previously expressed a preference for lower borrowing costs, though he has not made any recent public remarks indicating his current position on the matter.
“The Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals,” said the Fed.
