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Dive brief:
- The Federal Reserve, in a four-point decision, kept the main interest rate steady on Wednesday, pointing to risks to inflation and jobs as the Iran war spilled into a third month.
- Fed Chairman Jerome Powell, echoing a statement from the Federal Open Market Committeedescribed economic growth as “solid” and flagged the uncertainty of war as Brent crude futures rose to highest level in almost four years. Three dissenting policymakers “did not support at this time the inclusion of a softening bias in the statement,” according to the FOMC. Gov. Stephen Miran also dissented, favoring a quarter-point cut in the federal funds rate.
- “The economic outlook remains very uncertain and the conflict in the Middle East has added to that near-term uncertainty,” Powell told a news conference after a two-day FOMC meeting. “Higher energy prices will boost headline 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.”
Diving knowledge:
Powell said that after his term as Federal Reserve chairman ends on May 15, he will remain on the board as governor to help ensure the Fed is free from political interference from the Trump administration.
“The institution is being abused,” Powell said, adding “we have to go to the courts” to ensure that monetary policy is conducted without political interference.
“So far we have been successful, but this is not over – nothing has been concluded yet,” he said.
The Justice Department last week suspended a criminal investigation into Powell’s handling of Fed building renovations after a court blocked subpoenas related to the probe.
Before the investigation, President Donald Trump publicly criticized Powell for months, saying the Fed chairwoman should cut the benchmark rate to 1%.
“I will not leave the board until this investigation has truly concluded with transparency and finality,” Powell said. “I plan to keep a low profile as governor,” he said, adding that he will determine later when he will leave office. His term on the board ends in 2028.
Policymakers in their statement maintained a bias toward easing, although the consensus is moving toward a neutral stance that gives equal weight to curbing inflation and avoiding a rise in unemployment, Powell said.
“The center is moving to a more neutral place,” Powell said, referring to the FOMC consensus. “That’s what the markets are saying too.”
“Of course we’ll switch to a hiking bias if we want to walk and switch to a new neutral bias before that,” he said.
The war-induced rise in energy prices threatens to raise inflation, slow economic growth and raise unemployment, complicating the Fed’s efforts to meet Congress’s mandate to maintain stable prices and full employment.
Not knowing whether to fight inflation or unemployment, policymakers have opted this year to keep the federal funds rate in a range between 3.5% and 3.75%.
If central banks cut borrowing costs to bolster the labor market, they may also spur inflation, which has been above the Fed’s 2 percent target for five years and has risen in recent months.
Energy prices have soared since the US and Israel launched strikes on Iran on February 28, with Brent crude oil futuresthe global benchmark, which went from $73 per barrel to $119 per barrel or 63%.
On the flip side of the Fed’s dual mandate, employment rose slightly this month after falling in March, creating the gloomiest two-month stretch for the labor 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 very resilient for a number of years,” Powell said, referring to how the economy has weathered supply disruptions from Russia’s invasion of Ukraine, the pandemic, the highest tariffs since the 1930s and the Iran war.
“The American economy has just taken shock after shock, and consumers are still spending,” he said.
