The Fed kept interest rates unchanged

On March 18, 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 meeting. Last year, this agency reduced interest rates 3 times.

“Economic activity remains growing at a solid pace,” the Fed said in its announcement on March 18. However, inflation “is accelerating” and the labor market has been “virtually unchanged in recent months”.

In the press conference afterward, Fed Chairman Jerome Powell opened by saying: “We find that the current monetary policy stance is appropriate.” After summarizing the Fed’s latest policy decisions and forecasts, he addressed the fighting in the Middle East.

“The impact of developments in the Middle East on the US economy is still unclear. In the short term, rising energy prices will push up general inflation, but it is too early to assess the scale and duration of the potential impacts on the economy,” he said.

Therefore, the agency will “closely monitor risks” with the dual goals of employment and prices.

Powell also addressed the stance of officials on the monetary policy-setting council. “4-5 people have changed from planning to reduce interest rates twice to once. Everyone has a reason for their choice,” he said.

In general, Fed officials expect the process of containing inflation to make progress from mid-year. “The forecast for interest rates depends on how the economy is doing. If we don’t see progress, there will be no interest rate reduction,” Powell explained.

The Fed forecasts cutting interest rates by only 25 basis points (0.25%) this year and the same amount in 2027.

Stephen Miran is the only governor who disagrees with the general decision this time, wanting to reduce interest rates by 25 basis points. Miran has frequently cast dissenting votes in recent sessions.

On the US stock market, major indexes narrowed their decline after the Fed’s announcement. The S&P 500 is now down 0.6%, the Nasdaq Composite is down 0.5% and the DJIA is down 0.9%.

Meanwhile, world gold prices still dropped sharply. Each ounce currently costs 130 USD, to 4,878 USD. A few hours earlier, the price was at 4,840 USD.

Before the meeting, new signs of a weakening US labor market and rising inflation due to oil prices put Fed officials in a difficult position. They will have to consider leaving interest rates unchanged to avoid worsening inflation, or cutting them to support a losing job market.

The US Department of Labor report released earlier this month showed that businesses unexpectedly cut the number of jobs in February. The unemployment rate also inched up to 4.4%.

The Fed meeting took place in the context of the war between the US, Israel and Iran entering its 19th day. The Strait of Hormuz is almost closed and oil and gas infrastructure in many countries are attacked, creating an energy shock that is likely to cause consumer goods prices to skyrocket, inflaming inflation that the Fed has been trying to contain since 2022.

Gasoline prices in the US have increased to an average of 3.84 USD per gallon (1.02 USD per liter) on March 18, according to the American Automobile Association (AAA). This level has increased by about 28% since the conflict broke out.

This session is also one of the last two meetings Powell participated in as Chairman. His term will end on May 15. At the end of January, US President Donald Trump nominated former Fed Governor Kevin Warsh to be the next Fed Chairman. This nomination needs to be approved by the US Senate.