Fed holds main rate steady, notes risks to jobs, inflation from Iran war

Dive Brief:

The Federal Reserve, in a decision with four dissents, held the main interest rate steady on Wednesday, noting risks to inflation and jobs as the Iran war spilled into a third month.
Policymakers, while describing economic growth as “solid,” flagged uncertainty from the war as Brent crude oil futures climbed to the highest level in nearly four years. Three dissenting policymakers “did not support inclusion of an easing bias in the statement at this time,” the Federal Open Market Committee said in a statement. Governor Stephen Miran also dissented, favoring a quarter-point trim to the federal funds rate.
“Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook,” the FOMC said after a two-day meeting, highlighting “low” employment gains and “elevated” inflation. “The committee is attentive to the risks to both sides of the dual mandate.”

Dive Insight:

A war-induced surge in energy prices threatens to increase inflation, slow economic growth and push up unemployment, complicating Fed efforts to meet a congressional mandate to maintain stable prices and full employment.

Unsure whether to combat inflation or unemployment, policymakers have chosen this year to hold the federal funds rate at a range between 3.5% and 3.75%.

If central bankers trim borrowing costs to bolster the job market, they may also spur inflation, which has exceeded the Fed’s 2% target for five years and edged up in recent months.

Energy prices have soared since the U.S. and Israel launched attacks on Iran on Feb. 28, with futures for Brent crude oil, the global benchmark, rocketing from $73 per barrel to $119 per barrel or 63%.

Regarding the other side of the Fed’s dual mandate, employment edged up just slightly this month after falling in March, creating the grimmest consecutive two-month span for the job market since late 2024, according to S&P Global.