The US Federal Reserve held interest rates steady on Wednesday and forecast high inflation, stable unemployment and only one rate cut for the year as officials took stock of the economic risks from America’s and Israel’s war with Iran.
New projections from US central bank policymakers showed the Fed’s benchmark overnight interest rate would fall by only a quarter percentage point by the end of this year, with no indication of the timing of such a move. This outlook was unchanged from previous estimates and is not in line with President Donald Trump’s demand for a sharp decline in borrowing costs.
Inflation, as measured by the Fed’s preferred gauge, was expected to end the year at 2.7%, not much lower than its current rate and up from the 2.4% estimated in December, a potential hit from a surge in global oil prices following the start of the bombing campaign against Iran.
“The implications of developments in the Middle East for the U.S. economy remain uncertain,” the Fed said in a policy statement. The ongoing stable unemployment is also mentioned in it.
The new rate and economic projections show the Fed is, for now, largely overlooking the oil shock, with policymakers still expecting to keep rates low this year and inflation expected to reach 2.2% by the end of 2027, close to the central bank’s 2% target.
Notably, no policymaker saw a need to raise rates by the end of this year, although one official anticipated a rate hike in 2027.
Economic growth for 2026 was slightly upgraded to 2.4%, compared with 2.3% in December, and the unemployment rate forecast remained unchanged at 4.4%.
Fed Governor Stephen Miran continued his dissent, voting against keeping the policy rate in the current 3.50%-3.75% range and voting in favor of a rate cut.
The decision to keep policy rates steady was widely expected in financial markets, but the estimates provide fresh insight into how the US central bank is assessing the economic impact of a war that has disrupted global oil markets.
Oil prices have jumped from below $80 a barrel to $108 ahead of the Fed’s policy decision, U.S. gasoline prices are also rising and new inflation data shows wholesale prices are rising faster than expected even before the conflict began.
Apart from the reference to the war, the Fed’s new statement was little changed from the one issued at the end of its January 27-28 meeting.
