The US Federal Reserve held interest rates steady at 3.50%–3.75% while Jerome Powell highlighted inflation concerns, rising oil prices, and global uncertainty, signalling no immediate rate cuts ahead.
Fed holds rates steady at 3.50%–3.75%, Powell signals caution amid uncertainty
The Federal Reserve kept its key interest rate unchanged at 3.50%–3.75%, in line with market expectations. However, the real attention was on Jerome Powell, who delivered what is likely his final press conference as chair.
Economy steady, but mixed signals remain
Powell said the US economy is expanding at a “solid pace”, supported by strong consumer spending. This explains that demand remains healthy regardless of higher interest rates. However, he flagged that the housing sector continues to struggle. He also described the labour market as broadly stable but noted mixed signals in recent data. However, employment remains resilient, the lack of clear strength means the Fed is not yet confident enough to shift policy.
Inflation still a key concern
Inflation remains above the Fed’s 2% target, and Powell acknowledged it has “moved up recently.” He pointed to rising global energy prices as a major driver, warning that higher oil costs are likely to push inflation up further in the near term. At the same time, he said the longer-term impact is still uncertain. This uncertainty is one of the main reasons the Fed is choosing to hold rates steady rather than move toward cuts.
Middle East conflict adds to uncertainty
Geopolitical tensions, particularly involving Iran, are adding another layer of complexity. Powell said developments in the Middle East are contributing to “high levels of uncertainty” about the economic outlook. Higher oil prices, supply disruptions, and global instability are making it harder for policymakers to predict how inflation and growth will evolve.
No rush to cut rates
Powell made it clear that the Fed is in no hurry to cut interest rates. The policy statement leaves room for future easing, any decision will depend on incoming economic data. He stressed that rate cuts will only happen if inflation shows a clear and sustained move toward the 2% target. Until then, the Fed is likely to stay cautious.
Powell to remain on board as governor
A key point from the press conference was Powell’s decision to stay on as a governor after stepping down as chair on May 15. He said he would remain for a period of time, though the duration is not fixed. Powell indicated that recent legal and political developments influenced this decision, as he wants to ensure stability within the institution.
DOJ probe and independence concerns
Powell also addressed the closure of a probe by the US Department of Justice into the Fed and he welcomed the move, he noted that the investigation could be reopened. He emphasised the importance of maintaining the Fed’s independence, warning that political or legal pressure should not interfere with monetary policy decisions.
Warsh transition expected to be smooth
Powell congratulated Kevin Warsh on his progress and described the leadership change as a “standard” transition. He said he has not been in close contact with Warsh recently but expects a smooth handover. Powell added that he plans to keep a low profile as governor, making it clear that there will be only one leader at the Fed once Warsh takes over.
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