The Federal Reserve kept interest rates on hold on Wednesday, as the surge in oil prices to nearly $120 (€103) triggered by Donald Trump’s war in Iran opens fresh divisions between rate-setters.
“Inflation is elevated, in part reflecting the recent increase in global energy prices,” the rate-setting Federal Open Market Committee said in its post-meeting statement, as it voted to keep in place the benchmark federal funds rate in a 3.5-3.75 per cent range for the third meeting in a row.
Four officials voted against the decision, including three who objected to language in their post-meeting statement that suggested the central bank would eventually resume cutting rates.
Cleveland Fed president Beth Hammack, Minneapolis Fed president Neel Kashkari and Dallas Fed president Lorie Logan “supported maintaining the target range for the federal funds rate but did not support inclusion of an easing bias in the statement at this time,” the committee said.
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Governor Stephen Miran dissented in favour of a quarter-point reduction in rates.
The 8-4 vote marked the first time since October 1992 that four officials dissented against a Federal Open Market Committee decision.
Inflation remains steady; and Conor Pope’s energy saving tips
Heading into the meeting, investors and economists widely expected the Fed to leave rates unchanged through the remainder of the year.
Wednesday’s meeting is likely to be the last to be chaired by Jerome Powell, after a Senate panel earlier on Wednesday approved the appointment of Kevin Warsh, Donald Trump’s nominee to lead the US central bank.
The decision puts Warsh on track to be approved by the Republican-controlled Senate before Powell’s chair term expires in mid-May.
Warsh will take the helm as the US-Israeli war with Iran continues to fan uncertainty among business leaders and economists. The resultant surge in energy prices has threatened to fuel already-stubborn inflation, and the extra burden on consumers could lead to slower growth and job cuts.
That sets up a central banker’s nightmare: higher inflation and climbing unemployment that tug monetary policy in two directions at once.
For now, the unemployment rate appears to have stabilised. But net hiring has fallen to near zero over the past year, making the labour market vulnerable to shocks, according to multiple policymakers.
At the same time, inflation has been above the Fed’s 2 per cent target for five years. As officials met on Wednesday, Brent crude prices hit their highest since June 2022. While no Fed official has said they expect the next policy move to be a hike, several are keen to signal that it could be. – Financial Times/Bloomberg
