- The Fed cited inflation concerns, uncertainty over the economic outlook, and ambivalence over the implications of the Iran war for its decision.
- The Federal Open Market Committee voted 11-1 in favor of holding the key funds rate steady.
- The apex bank also flagged uncertainty in the job market, pivoting from a narrative of labor market stabilization in January to noting that job gains have remained low.
The Federal Reserve on Wednesday held interest rates steady in its latest policy decision, citing inflation concerns, uncertainty over the economic outlook, and ambivalence over the implications of the Iran war.
The apex bank said that it would keep overnight lending rates in the 3.5%-3.75% range, widely in line with Wall Street expectations. Markets had anticipated a 99% probability of rates being unchanged, according to data from the CME FedWatch tool.
“Uncertainty about the economic outlook remains elevated. The implications of developments in the Middle East for the U.S. economy are uncertain. The Committee is attentive to the risks to both sides of its dual mandate,” the Fed said in its statement.
Fed Rationale
The Federal Open Market Committee voted 11-1 in favor of holding the key funds rate steady. Gov. Stephen Miran opposed the decision, voting to lower the rate by a quarter of a percentage point.
The Fed’s decision to keep rates unchanged is the second straight time that officials have made this decision, despite repeated calls from U.S. President Donald Trump to cut interest rates.
The announcement comes amid a war in the Middle East after coordinated strikes from the U.S. and Israel against Iran have caused a significant spike in global oil prices, stoking inflation concerns, impact on economic growth as well as employment.
The Fed also flagged uncertainty in the job market, pivoting from a narrative of labor market stabilization in January to noting that “job gains have remained low, and the unemployment rate has been little changed in recent months.”
Inflation Update
The Fed noted that inflation remains “somewhat elevated,” even as it trends above the 2% target range.
Federal Reserve Chair Jerome Powell said on Wednesday in his remarks after the Fed's policy meeting that the increase in oil prices due to the war in Iran, and President Trump’s tariffs, would impact inflation.
Meanwhile, on Wednesday, U.S. producer prices came in higher than expected, with the producer price index for total final demand rising 0.7% in February, compared to January’s 0.5% monthly advance.
According to the Bureau of Labor Statistics, February PPI increased 3.4%, compared to a 2.9% advance in January, driven by higher costs for goods and services, and is likely to increase further if the war in the Middle East pushes oil prices up further.
Meanwhile, U.S. equities traded in the red on Wednesday at the time of writing. The SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was down by 0.171%, the Invesco QQQ Trust ETF (QQQ) fell 0.6%, and the SPDR Dow Jones Industrial Average ETF Trust (DIA) fell 1.01%.
Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘extremely bearish’ territory.
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