The Fed kept interest rates unchanged for the third consecutive time

On April 29, after a 2-day policy meeting, the Fed decided to keep the reference interest rate unchanged at 3.5-3.75%. This move is similar to the January and March sessions. Last year, this agency reduced interest rates 3 times.

“Inflation is accelerating, partly reflecting the recent rise in global energy prices. Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook,” the Fed said in an announcement after the meeting. The agency’s wording has changed compared to the previous meeting, removing the word “a little” when talking about accelerating inflation.

However, the agency left unchanged its description of how the Fed will assess “the extent and timing of further interest rate adjustments.” This phrase implies that interest rates may be reduced later.

In addition to accelerating inflation, the Fed also said “the unemployment rate has remained virtually unchanged over the past few months” and the economy continues to grow “at a solid pace.”

After the Fed’s announcement, key US stock indexes dropped further. The S&P 500 and Nasdaq Composite are now down 0.27%. DJIA dropped as much as 0.7%.

On the gold market, each ounce currently loses 61 USD, to 4,534 USD. Precious metals have been under pressure since the beginning of the war, as high energy prices pushed up inflation, making central banks hesitant to reduce interest rates.

The Fed meeting took place in the context of rising oil prices due to the war in the Middle East over the past 2 months, causing inflation risks to increase.

This was also the Fed session that showed the largest division of opinion since 1992, when four officials disagreed with the general decision. Cleveland Fed President Beth Hammack, Fed President Neel Kashkari and Dallas Fed President Lorie Logan agreed to keep interest rates unchanged, but “do not support including in a joint statement a position leaning toward easing at this time.” And Governor Stephen Miran continued to vote in favor of reducing interest rates by 25 basis points (0.25%). Stephen Miran has frequently cast dissenting votes in recent sessions.

Besides, this may also be the last session for Mr. Jerome Powell to hold the position of Fed Chairman. On April 29, Kevin Warsh – who was nominated by US President Donald Trump to be Chairman of the Fed for the next term – was voted on by the US Senate Banking Committee. Senator Thom Tillis supported Warsh after the US Department of Justice dropped the criminal investigation into Powell. Previously, this was Warsh’s biggest hurdle.

Soon, ratification will be sent to the US Senate. MPs could vote as early as the next two weeks. If the results remain the same, Warsh could take over as Fed Chairman after Powell’s term ends on May 15. The Fed’s next meeting will take place in June.

Investors currently predict that the Fed will be unlikely to reduce interest rates before the middle of next year.