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The Federal Reserve on Wednesday announced that it will hold interest rates steady due to concerns about elevated inflation amid the war in Iran.
Fed policymakers voted 9-3 to leave the benchmark federal funds rate unchanged at its current range of 3.5% to 3.75%. The move follows the central bank’s decision to hold rates steady in January, March, April and June following three successive 25-basis-point rate cuts in September, October and December to close out last year.
The Federal Open Market Committee (FOMC), the central bank’s panel responsible for monetary policy moves, noted that “economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East.”
Policymakers noted that inflation remains above the Fed’s 2% goal, in part because of supply shocks driving price increases in sectors such as energy, and added that they will deliver price stability. The FOMC aloes noted that job growth is keeping pace with the workforce and that the unemployment rate has changed little.
HOW DOES FED CHAIR NOMINEE KEVIN WARSH VIEW THE CENTRAL BANK’S INFLATION GOAL?
Three FOMC members dissented from the decision, including Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan. Each of the dissenters voted in favor of raising the federal funds rate by 25-basis-points.
The decision was the second under the leadership of Fed Chair Kevin Warsh, who has removed forward guidance from the FOMC’s post-meeting statements.
Warsh said in his opening remarks that the FOMC thinks the move to hold rates steady was “especially prudent at these uncertain times,” while emphasizing for households, businesses and market professionals that the Fed doesn’t have a soft or implicit inflation target, and remains focused on achieving 2% inflation.
“Not one of my FOMC colleagues is under any illusion, we have begun a new chapter, and we understand that the five-plus years of inflation above target cannot be cured in nine weeks, or by a single month of modest price decreases. This Fed will not waver. Our credibility rests on performing our duties and delivering on our responsibilities,” Warsh said.
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