WASHINGTON – The Federal Reserve on Wednesday voted to hold its key interest rate steady as policymakers navigated their way through expected inflation readings, mixed signs in the labor market and war.
In a widely expected decision, the Federal Open Market Committee voted 11-1 to anchor the benchmark federal funds rate between 3.5%-3.75%. The rate sets overnight funding costs for banks but affects a wide range of consumer and business lending.
The committee made some changes to its outlook on the economy in its post-meeting statement, with slightly slower growth and higher inflation projections for the full year to 2026.
Despite heightened uncertainty, officials indicated they expect some rate cuts again. A closely watched “dot plot,” which reflects individual member rate projections, indicated one cut this year and another in 2027, though the timing remains unclear.
Of the 19 FOMC participants, seven indicated they expected rates to remain unchanged this year, up from the last update in December. Although future years show a fairly wide distribution of forecasts, the median outlook is for further cuts in 2027 before the funds rate stabilizes at around 3.1% over the longer term.
The statement noted the uncertainty surrounding the war with Iran, which began nearly three weeks ago. The fighting and its impact on the Strait of Hormuz has roiled global oil markets and threatened to keep inflation above the Fed’s 2% target.
“The implications of developments in the Middle East for the US economy are uncertain,” the statement said.
Governor Stephen Miron again disagreed, favoring a quarter percentage point cut amid growing concerns about the jobs climate. Gov. Christopher Waller joined Miron in seeking a cut in January, this time voting to hold.
Before the collision, markets had priced in two cuts this year, with a small chance of a third. But rising oil prices and firmer inflation readings – covering earlier data for an energy shock – have pushed expectations to a cut in 2026.
In updates to their economic projections, Fed officials see gross domestic product expanding at a 2.4% pace this year, slightly faster than in December. Growth is expected to advance at a robust 2.3% rate in 2027, up three-tenths of a percentage point from the previous outlook.
Officials have raised their inflation outlook this year. They now expect the Personal Consumption Expenditure Price Index to reflect an inflation rate of 2.7%, both headline and core. However, they see inflation falling back near the Fed’s 2% target in the coming years as the impact of tariffs and war fades. Despite a series of weak payroll readings, policymakers expect an unemployment rate of 4.4% by the end of the year.
The Fed’s decision to hold comes against a complicated political backdrop.
President Donald Trump continues to badger Powell and his colleagues for lower rates. Earlier this week, Trump criticized Powell for not calling a special meeting on easing, despite rising inflation and uncertainty over the impact of the war.
For his part, Powell presided over his next-to-last meeting as head of the central bank. His term ends in May, and Trump has tapped former Fed governor Kevin Warsh as his successor. Warsh has indicated a preference for lower rates, though he has made no recent public statements to indicate where his thinking now stands.
Further complicating the dynamic is Trump’s own Justice Department.
US Attorney Jeanine Pirro in Washington has subpoenaed Powell for evidence regarding the Fed’s multibillion headquarters renovation. However, Powell has opposed the subpoena and accused Trump of using it as a pretext to pressure the Fed to lower rates. The judge sided with Powell on the issue, throwing out the subpoenas and accepting the idea that the attempt was a twist to cut off Powell’s arm.
However, Pirro has vowed to appeal and Sen. Thom Tillis, RN.C., said he would block Warsh’s nomination to the Senate Banking Committee until the Powell matter is resolved. Assuming the court battle continues past May, it could keep Powell in his position until Warsh is confirmed.
(tags to translate) Breaking News: Economy
