The US Federal Reserve on Wednesday, 29 April, avoided surprising markets by keeping the federal funds rate unchanged for the third consecutive meeting at 3.5%–3.75% amdi increased risk of inflation rising due to higher global energy prices.
The Fed’s decision to hold rates steady is on expected lines, as the risk of an inflation flare-up remains high due to energy prices remaining elevated for a longer period. prices are above the $110 per barrel as the Strait of Hormuz remains effectively closed amid stalled US-Iran talks.
The US Federal Open Market Committee (FOMC) met on April 28-29 to decide the policy rates amid high uncertainty stemming from the West Asian war. This was the last policy meeting of Jerome Powell as the Fed chief, as his term expires on May 15.
“This is my last press conference as chair, ” said Powell as he congratulated Kevin Warsh on his role as new Fed chief.
U.S. President Donald Trump has picked to lead the Federal Reserve after Powell. Meanwhile, as per news agency Reuters, the voted along party lines to advance Warsh’s nomination to the full Republican-controlled Senate, clearing a key procedural hurdle for him to succeed Powell.
US Fed April policy meeting: Key takeaways
1. Rates remain unchanged; the number of dissenters rises
The FOMC voted 8-4 to hold the benchmark interest rate in a range of 3.5% to 3.75%, highlighting increased uncertainty due to the war in West Asia (the Middle East).
“The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook. The Committee is attentive to the risks to both sides of its dual mandate. In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 3‑1/2 to 3‑3/4%,” Read FOMC statement.
Among the four who opposed the decision, Stephen I. Miran called for lowering the target range for the federal funds rate by 25 basis points, while three policymakers supported the pause but showed no inclination to lower interest rates.
2. Inflation risk remains elevated
The FOMC highlighted the increased risk of inflation from recent increases in global energy prices.
“Inflation is elevated, in part reflecting the recent increase in global energy prices,” the FOMC statement read.
US inflation remained above the Fed’s 2% target even before the US-Iran conflict started. The conflict has added another layer of uncertainty, making the situation complex for the Federal Reserve to fulfil its dual mandate of keeping inflation near its long-term 2% target while ensuring maximum employment.
(This is a developing story. Please check back for fresh updates.)