In a widely expected move, the Federal Reserve held its benchmark interest rate steady Wednesday at a target range of 3.5% to 3.75%, the same level it set in January.
“Available indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, and the unemployment rate has been little changed in recent months. Inflation remains somewhat elevated,” Federal Open Market Committee (FOMC) officials said in a statement. “Uncertainty about the economic outlook remains elevated. The implications of developments in the Middle East for the U.S. economy are uncertain.”
Fed Chair Jerome Powell told journalists that “in the near term, higher energy prices will push up overall inflation, but it is too soon to know the scope and duration of the potential effects on the economy.”
The policy change was approved by a 11-1 vote from the FOMC. Stephen Miran dissented, preferring to lower the target range for the federal funds rate by 25 basis points at this meeting.
Since the central bank’s last meeting, political uncertainty and geopolitical tensions have increased. These include the U.S. military conflict with Iran, the U.S. Supreme Court ruling against tariffs and a federal judge blocking a Department of Justice investigation into comments made by Fed Chair Jerome Powell regarding a multibillion-dollar renovation of the Fed’s headquarters.
Powell said he will continue to serve as chair pro tem until Kevin Warsh is confirmed, which the Fed has done on “several occasions.” He also said he has “no intention of leaving the board until the investigation is well and truly over.” No decision has been made on whether Powell will remain as a governor after his term ends and the investigation concludes.
At the same time, tensions remain between the Fed’s dual mandate of maximum employment and stable prices. These dynamics could prolong the current pause in rate cuts longer than previously expected. As recently as January, most market participants anticipated additional cuts beginning as early as April, but these expectations have since shifted to June or later.
In the FOMC’s new quarterly projections, 12 of 19 meeting participants forecast at least one rate cut this year, unchanged from December, but several signaled fewer reductions. One participant projected a rate hike in 2027.
According to Powell, officials forecast that the U.S. economy “will be making progress on inflation,” but “not as much as we had hoped,” as progress on tariffs start to happen in the middle of the year. “The rate forecast is conditional on the performance of the economy, so if we don’t see that progress, then you won’t see the rate cut,” Powell added.
Personal Consumption Expenditures (PCE) inflation is expected to reach 2.7% by the end of 2026, up from the previously forecast figure of 2.4%. Gross domestic product (GDP) growth is projected at 2.4%, slightly higher than the prior 2.3%, while the unemployment rate remains unchanged at 4.4%.
“Markets are fixated on the timing of a resolution in the Strait of Hormuz, because sustained $100 oil would keep inflation elevated in the near term and likely delay rate relief, even as recession risks build beneath the surface,” said Joe Panebianco, CEO at AnnieMac Home Mortgage.
“If prices ease before mid-April, however, we could see a sharp rally in Treasurys and a return to early-year rate levels, with the 10-year drifting back toward the low 4% range,” he added.
Mortgage rates — which tend to track the yield on the 10-year Treasury — have climbed recently. Data from Mortgage News Daily showed 30-year fixed rates reaching a seven-month high of 6.41% on Friday before easing to 6.36% on Monday. Meanwhile, HousingWire’s Mortgage Rates Center showed an average rate of 6.19% for 30-year conforming loans on Tuesday, up 4 basis points from the previous week.
The Fed is also weighing mixed economic data. U.S. employers eliminated 92,000 nonfarm payroll jobs in February, compared to 126,000 additions in January, while the unemployment rate held relatively steady at 4.4%, according to the U.S. Bureau of Labor Statistics.
Inflation data also remain complicated. The Consumer Price Index rose 2.4% over the 12 months ending in February, unchanged from January. But that figure predates the recent surge in oil prices tied to the Iran conflict. Since the Fed’s last meeting, oil prices have climbed more than 50%.
According to Sam Williamson, senior economist at First American, the Fed is taking another “wait-and-see decision.”
“Core inflation appears to be holding near 3% and, while labor market data have been mixed over the inter-meeting period, conditions look little changed since the FOMC last met in January,” Williamson said in a statement. “That combination is likely to leave policymakers in no hurry to act, particularly with recent geopolitical disruptions adding upside risk to the inflation outlook.”
Danielle Hale, chief economist at Realtor.com, said divisions remain within the committee. Some members are focused on the risks to price stability, while others have been more vocal about the risks to the labor market.
Some policy watchers say investors should look beyond the rate decision itself.
“The FOMC is navigating a narrow corridor where the risks of premature easing are balanced against the structural pressures of a shifting fiscal regime,” said Isaac Boltansky, head of public policy at Pennymac.
“While the market often over-rotates on the dot plot or the immediate rate path, the more consequential narrative is the Fed’s posture on balance sheet normalization and the long-term neutral rate.”
Editor’s note: This story was updated with comments from Fed Chair Jerome Powell.
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