WASHINGTON – The Federal Reserve on Wednesday voted to hold its key interest rate steady as policymakers navigate their way through higher-than-expected inflation readings, mixed signs on the labor market – and a war.
In a widely expected decision, the Federal Open Market Committee voted 11-1 to keep the benchmark federal funds rate anchored in a range between 3.5%-3.75%. The rate sets overnight funding costs for banks but influences a broad range of consumer and business borrowing.
The committee in its post-meeting statement made few changes to its view on the economy, with a slightly faster pace of growth and higher inflation projections for 2026.
Despite the elevated uncertainty, officials again signaled they still expect a few rate cuts ahead. The closely watched “dot plot,” which reflects individual members’ rate projections, pointed to one reduction this year and another in 2027, though the timing remains unclear.
Of the 19 FOMC participants, seven signaled they expected rates to stay unchanged this year, one more than the last update in December. While future years showed a fairly wide disbursement of forecasts, the median outlook is for an additional cut in 2027 before the funds rate steadies out around 3.1% for the long term.
Stocks fell to session lows as the central bank’s decision and comments from Federal Reserve Chair Jerome Powell drew more attention to the threat of persistant inflation.
War’s implications are ‘uncertain’
One factor is the uncertainty associated with the war with Iran that started nearly three weeks ago. The fighting and its impact on the Strait of Hormuz has roiled the global oil market and threatened to keep inflation above the Fed’s 2% target.
“The implications of developments in the Middle East for the U.S. economy are uncertain,” the statement said.
During his news conference, Powell said it was “too soon to know” the impact of the war.
“Near term measures of inflation expectations have risen in recent weeks, likely reflecting the substantial rise in oil prices caused by the supply disruptions in the Middle East,” he said.
Governor Stephen Miran again dissented, favoring a quarter percentage point cut amid rising concerns about the jobs climate. Governor Christopher Waller, who joined Miran in wanting a cut in January, voted this time to hold.
Before the conflict, markets had been pricing in two reductions this year, with a small chance of a third. But rising oil prices and a string of firm inflation readings — entailing data from before the energy shock — have pushed expectations down to at most one cut in 2026.
Faster economic growth seen
In updates to their economic projections, Fed officials see gross domestic product increasing at a 2.4% pace this year, a bit faster than in December. Growth is projected to progress at a solid 2.3% rate in 2027, up three-tenths of a percentage point from the previous outlook.
Officials also upped their inflation outlook for this year. They now expect the personal…
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