US Federal Reserve keeps benchmark interest rates unchanged

The US Federal Reserve kept its benchmark interest rate unchanged on Wednesday, maintaining the range at 3.50 per cent to 3.75 per cent. The decision was made amid ongoing uncertainty related to the conflict involving the US, Israel, and Iran.

Federal Reserve Chair Jerome Powell pointed out the unpredictability of the economic impact from higher energy prices caused by the conflict. He said the scale and duration of these effects remain unclear.

Following missile attacks on an energy hub in Qatar and Iran’s South Pars gas field, oil prices rose sharply. Brent crude closed about 4 per cent higher at $107.38 a barrel. This rise affected market expectations, with futures now indicating the Fed may delay rate cuts until 2027.

Fed officials forecast a quarter-point reduction in borrowing costs by the end of this year, consistent with December’s projections. However, Powell noted that many policymakers now expect less easing than previously anticipated. Powell said monetary policy would remain flexible and adjust as needed based on new data and risk assessments.

The Fed faces the challenge of balancing inflation risks, increased by recent energy price shocks, against potential weaknesses in the labour market. Inflation is now expected to end the year at 2.7 per cent, up from an earlier forecast of 2.4 per cent, partly due to ongoing tariff-related price pressures.

Economic growth projections were slightly raised to 2.4 per cent for 2026, while the unemployment rate forecast stayed steady at 4.4 per cent. One Fed governor dissented, calling for a rate cut based on productivity gains linked to artificial intelligence.

After the announcement, US stock markets fell, with the S&P 500 dropping about 1.4 per cent to a near four-month low. The dollar strengthened against other currencies, and Treasury yields rose, reflecting cautious investor sentiment.