The Fed will wait to move rates; includes war in calculations

Rising energy prices will boost inflation, although it is still early to estimate by what magnitude, the US Federal Reserve (Fed) has warned, as the war against Iran casts a shadow over its inflation outlook.

For the second consecutive monetary policy meeting this year, the US central bank kept the interest rate between 3.5 and 3.75 percent.

A new oil crisis threatens to prolong the fight of the Federal Reserve, which has been trying to control inflation for years after the covid-19 pandemic, so this year it could lower its reference rate only once.

The decision was not unanimous. Governor Stephen Miran voted to cut the rate by 0.25 percentage points, while the remaining 11 members decided to leave them unchanged.

In its statement, the Fed maintained that the implications of events in the Middle East for the US economy are “uncertain”, which tilts the balance of inflation risks to the upside and suggests a restrictive bias.

The majority of Fed governors believe that this year there will only be one rate cut or, in the worst case, none, but at least they rule out an increase despite the conflict in the Middle East.

In a press conference, Jerome Powell, president of the Fed, clarified that he has no intention of leaving the Federal Reserve while the Justice Department’s investigation against him and the institution continues due to cost overruns in the renovation of a central bank building. Likewise, he said that he will continue in his position until his successor, Kevin Warsh, is ratified by the United States Congress.

During the traditional quarterly meetings, the Fed updated its economic forecasts. The rise in prices could reach 2.7 percent in 2026. Previously it was thought that inflation would be 2.4 percent. Central bank officials raised their growth forecast from 2.3 to 2.4 percent and expect unemployment to remain at 4.4 percent, its current level.