The US central bank voted to hold interest rates steady again, as a spike in oil prices since the US-Israel war with Iran began raises economic uncertainty and threatens to drive up inflation.
The decision, which was widely expected, left the Federal Reserve’s key interest rate in the range of 3.5%-3.75%, where it has stood since December.
Despite pressure from US President Donald Trump to slash borrowing costs, policymakers have been moving cautiously, as they face a tricky combination of rising prices and mixed signals from the job market.
Analysts say the war has made them even less likely to cut, pushing back expectations for a rate cut until the end of this year.
The Fed typically lowers borrowing costs when it sees unemployment rising and wants to boost the economy. It raises them when it is worried about inflation, hoping higher borrowing costs will ease spending and slow down price rises.
But an economic picture muddied in part by abrupt policy changes, such as tariffs, has made it difficult for policymakers to agree on which problem to prioritise.
The war in Iran is the latest, triggering a spike in oil prices that has already driven up gas prices in the US to the highest since 2024.
While that is likely to drive up prices more widely, at least temporarily, it also risks slowing the economy, as households have less money to spend on other things.
“The implications of developments in the Middle East for the US economy are uncertain,” the Fed said in the statement announcing its rates decision.
Forecasts from policymakers show on average they now expect inflation of 2.7% this year, up from the 2.4% they were predicting in December.
The average forecasts for economic growth are 2.4%, up slightly from 2.3% in December. The unemployment rate is expected to hold steady at 4.4%, as previously predicted.
A majority of Fed board members still expect to cut interest rates at least once this year, with five now expecting rates could fall below 3%.
By BBC News
Email your news TIPS to Editor@Kahawatungu.com — this is our only official communication channel
