US Fed keeps interest rates steady amid economic, geopolitical uncertainty | Bank news

The United States Federal Reserve is holding interest rates steady as the labor market cools and prices on goods and services rise after the US and Israel joint strikes on Iran.

The central bank will maintain its benchmark rate at 3.5–3.75 percent, in line with the Fed’s decision last month, which kept rates steady.

“The Committee seeks to achieve maximum employment and inflation at a rate of 2 percent over the long term. Uncertainty about the economic outlook remains high. The implications of developments in the Middle East for the US economy are uncertain,” the central bank said in a statement announcing its policy decision, referring to its Federal Open Market Committee.

“The committee is mindful of the risks to both sides of its dual mandate.”

Holding rates constant is consistent with estimates. CME FedWatch, a tool that tracks monetary policy decisions, forecast a 99 percent chance that rates would remain steady.

The stall comes after three rate cuts in 2025.

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Consumers are facing the effects of US President Donald Trump’s trade and military policies on their everyday spending.

“Despite meaningful progress on inflation in 2024, Trump’s tariffs have stalled progress and kept inflation persistently below the Fed’s target. Wholesale prices are heating up as service prices rise, and now, Trump’s war on Iran is shaking commodity markets around the world,” said Elizabeth Pancotti, director of economics. Tank said in comments to Al Jazeera.

Last month, the US Supreme Court ruled against the president for using the International Emergency Economic Powers Act (IEEPA). The High Court held that the President had exceeded his authority and the duty levied under that order should be refunded. However, the President later imposed new tariffs that were not covered by the IEEPA.

The White House announced the 15 percent tariff through Section 122, which allows the president to impose tariffs for 150 days. Those changes were reflected in the producer price index report released Wednesday by the US Department of Labor’s Bureau of Labor Statistics.

Wholesale prices rose 0.7 percent for the month, marking the biggest one-month surge in a year. Commodity prices rose 1.1 percent overall after two months of tumbling. Fuel prices rose by 2.3 percent, while the cost of gas or petrol rose by 1.8 percent. Those costs are expected to rise as tensions rise in the Strait of Hormuz following the US-Israeli joint strikes on Iran in late February and subsequent retaliation.

“In the near term, higher fuel prices will increase overall inflation; however, it is too early to know the extent and duration of potential effects on the economy,” Fed Chair Jerome Powell told reporters.

Last month, gasoline prices jumped for US consumers. The average price of a gallon of regular gasoline is $3.84, up from $2.92 this time last month.

“The Fed’s inflation worries extend beyond a momentary wave of one-off price hikes related to tariffs and, more recently, fuel price rises,” Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets, told Reuters news agency.

Labor market stalls

As the job market tightens, so do holding rates. The latest jobs report released earlier this month showed the US economy lost 92,000 jobs, with unemployment rising to 4.4 percent.

Meanwhile, the Job Opportunities and Labor Turnover Survey, or JOLTS, report out last week showed 6.9 million open jobs in the US, unchanged from the previous month. It shows that employers have stopped hiring and those who have jobs are rarely moving on to new ones.

“This may be one of the most difficult moments in recent memory for the Federal Reserve’s Open Market Committee,” Michael Linden, senior policy fellow at the Washington Center for Equitable Growth, said in remarks to Al Jazeera. “Recent data revealed that economic growth was weakest in the back half of last year, the labor market appears to be on the precipice of disaster and prices are rising faster than anyone feels comfortable with.”

Political influences

Wednesday’s decision is the second-to-last for current Fed Chair Powell, whose term ends in May. Powell, who was first appointed by Trump in his first administration, was the target of Trump’s scorn and criticism for not cutting interest rates fast enough.

“When will Powell cut interest rates ‘too late’?” Ahead of the decision, Trump posted on his social media platform Truth Social on Wednesday morning.

In the past, Trump has said he will not nominate someone to lead the central bank unless the nominee agrees with his position.

“Anyone who disagrees with me will not be Fed Chair!” Trump said in a Truth Social post in December.

“At the Fed we continue to do our jobs with objectivity, integrity and a deep commitment to serving the American people,” Powell told reporters.

The nomination of Powell’s successor, Kevin Warsh, has spilled over, with Republican Senator Thom Tillis saying he will not vote to advance any Trump nominee to the central bank until a criminal investigation into the current chairman, Powell, is closed.

Tillis sits on the Senate Banking Committee, which vets nominees for the central bank, including Warsh. He said he would not endorse Trump’s Fed nominees until the Powell investigation is closed. Powell’s criminal investigation focused on Fed building renovations after a judge quashed grand jury subpoenas and called the probe a pretext to pressure the central bank to lower interest rates.

If Warsh is not confirmed by the Senate during the Fed’s June 16–17 meeting, Powell will continue to lead the rate-setting Federal Open Market Committee.

“If my successor is not confirmed by the end of my term, I will serve as president pro tem until he is confirmed. That’s what the law calls for,” Powell said.

“As for whether I will leave while the investigation is ongoing, I have no intention of leaving the board until the investigation is well and truly over with transparency and finality.”