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Dive Brief:
- The Federal Reserve, in a decision with four dissents, held the main interest rate steady on Wednesday, noting risks to inflation and jobs as the Iran war spilled into a third month.
- Fed Chair Jerome Powell, echoing a statement by the Federal Open Market Committee, described economic growth as “solid” and flagged uncertainty from the war as Brent crude oil futures climbed to the highest level in nearly four years. Three dissenting policymakers “did not support inclusion of an easing bias in the statement at this time,” according to the FOMC. Governor Stephen Miran also dissented, favoring a quarter-point trim to the federal funds rate.
- “The economic outlook remains highly uncertain, and the conflict in the Middle East has added to this uncertainty in the near term,” Powell said in a press conference after a two-day FOMC meeting. “Higher energy prices will push up overall inflation — beyond that the scope and duration of potential effects on the economy remain unclear,” he said. Policymakers “will continue to monitor the risks to both sides of our dual mandate.”
Dive Insight:
Powell said after the end of his term as Federal Reserve Chair on May 15 he will remain on the board as a governor to help ensure the Fed is free of political interference from the Trump administration.
“The institution is being battered,” Powell said, adding “we’re having to resort to the courts” in order to ensure monetary policy is conducted without political interference.
“We’ve been successful so far, but that’s not over — none of that is concluded yet,” he said.
The Justice Department last week suspended a criminal investigation of how Powell handled building renovations of the Fed after a court blocked subpoenas related to the probe.
Prior to the investigation President Donald Trump for months publicly criticized Powell, saying the Fed chair should cut the benchmark rate to as low as 1%.
“I will not leave the board until this investigation is well and truly over with transparency and finality,” Powell said. “I plan to keep a low profile as a governor,” he said, adding that he will determine at a later date when he will step down. His term on the board ends in 2028.
Policymakers in their statement retained a bias toward easing even as the consensus is moving toward a neutral stance that gives equal weight to curbing inflation and averting higher unemployment, Powell said.
“The center is moving toward a more neutral place,” Powell said, referring to the FOMC consensus. “That’s sort of what markets are saying too.”
“Of course, we will move to a hiking bias if we want to hike, and move to a new neutral bias before that,” he said.
The war-induced surge in energy prices threatens to increase inflation, slow economic growth and push up unemployment, complicating Fed efforts to meet a congressional mandate to maintain stable prices and full employment.
Unsure whether to combat inflation or unemployment, policymakers have chosen this year to hold the federal funds rate at a range between 3.5% and 3.75%.
If central bankers trim borrowing costs to bolster the job market, they may also spur inflation, which has exceeded the Fed’s 2% target for five years and edged up in recent months.
Energy prices have soared since the U.S. and Israel launched attacks on Iran on Feb. 28, with futures for Brent crude oil, the global benchmark, rocketing from $73 per barrel to $119 per barrel or 63%.
Regarding the other side of the Fed’s dual mandate, employment edged up just slightly this month after falling in March, creating the grimmest consecutive two-month span for the job market since late 2024, according to S&P Global.
So far, the economy has taken the oil price shock in stride, Powell said.
“It’s been remarkably resilient for some years now,” Powell said, referring to how the economy has weathered supply disruptions from the Russian invasion of Ukraine, the pandemic, the highest tariffs since the 1930s and the Iran war.
“The U.S. economy has just powered through shock after shock, and consumers are still spending,” he said.
