The US Federal Reserve decided to maintain interest rates unchanged due to the impact of rising global energy prices related to the Middle East conflict, which have led to higher inflation. Federal Reserve Chair Jerome Powell emphasized the central bank’s commitment to achieving maximum employment and stable prices, noting the recent elevation in inflation levels. Powell highlighted the solid pace of the US economy, with resilient consumer spending and robust business investment, although job gains have slowed and the housing sector remains weak.
In its decision, the Federal Open Market Committee (FOMC) opted to keep the policy rate within the 3.5 to 3.75 per cent range, deeming the current stance as necessary to support economic stability. Powell pointed out that inflation pressures have intensified, partly due to increased oil prices driven by geopolitical tensions, resulting in a 3.5 per cent rise in total PCE prices over the past year. Core inflation, excluding food and energy, stood at 3.2 per cent, influenced in part by tariffs on goods prices.
Despite the inflationary concerns, the Federal Reserve signaled a cautious approach towards further policy actions. Powell emphasized that monetary policy decisions will be made on a meeting-by-meeting basis, highlighting the stability but subdued nature of the labor market. The unemployment rate held steady at 4.3 per cent in March, with minimal changes recently, while job growth has slowed, attributed partly to reduced immigration and participation rates.
Powell expressed the Fed’s readiness to monitor inflation developments closely, especially given uncertainties surrounding oil prices and trade disruptions. While energy shocks are typically temporary, Powell noted that the current situation has not yet peaked. He also raised concerns about risks to the central bank’s institutional independence, citing potential legal threats that could compromise its ability to operate free from political influence. Powell confirmed his upcoming resignation as chair on May 15 but plans to continue serving on the board as a governor to ensure stability amid ongoing challenges.
