The Federal Reserve held interest rates steady for the second consecutive policy meeting this year, amid a surge in oil prices and increased economic uncertainty, as officials projected one rate cut for the year.
The central bank voted in a split decision on Wednesday to hold its benchmark interest rate in the range of 3.5% to 3.75%. Fed Governor Stephen Miran disagreed with the decision, preferring to cut rates by a quarter percentage point.
Fed officials still see just one rate cut this year, the same as projected in December, as inflation remains a full percentage point above the central bank’s 2% goal with oil gushing higher, but the job market flashes yellow, raising questions about its stability.
The breakdown on future cuts, according to the Fed: Seven officials see no cuts this year, while seven see one cut, two see two cuts, two see three cuts, and one sees four cuts.
Fed officials acknowledged uncertainty emanating from the war in Iran, stating, “the implications of developments in the Middle East for the US economy are uncertain.”
Against that backdrop, officials revised their outlook for economic growth higher by a tenth of a percent, with inflation higher on both a headline and a “core” basis, which excludes volatile food and energy prices.
Headline inflation is now seen rising 2.7%, compared with 2.4% previously. On a “core” basis, officials see inflation at 2.7%, compared with 2.5% previously.
A reading on the Federal Reserve’s preferred inflation gauge for January — the Personal Consumption Expenditures Index on a “core” basis — before the Iran war hit a two-year high of 3.1%.
The Fed sees the economy growing 2.4% this year, up from 2.3% previously. The unemployment rate is seen holding steady at 4.4%.
Officials acknowledged recent volatility in labor market data, but also focused on the stability of the unemployment rate. They removed language that the job market had shown signs of stabilization and reiterated that job gains have remained low, while noting the unemployment rate has been “little changed in recent months.” In January, jobs spiked by 126,000, followed by a plunge in payrolls of 92,000 in February, which has left the unemployment rate little changed at 4.4%.
Policymakers reiterated “in considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”
This was Fed Chair Jerome Powell’s second-to-last policy meeting at the helm, assuming President Trump’s nominee to replace him, Kevin Warsh, is confirmed by the time Powell’s term is up on May 15.