In holding rates, monetary policymakers also noted the ‘uncertain’ impacts of the Iran war.
The Federal Reserve left interest rates unchanged on March 18 for a second consecutive meeting, as policymakers monitor the oil shock from the Iranian conflict.
Officials kept the benchmark federal funds rate—the key lever that helps shape borrowing costs for households and businesses—at its current range of 3.5 percent to 3.75 percent.
In a post-meeting statement, the Fed said various indicators suggest that the economy is “expanding at a solid pace,” as employment gains remain low and the unemployment rate holds steady.
“Uncertainty about the economic outlook remains elevated,” the Federal Open Market Committee said in a statement. “The implications of developments in the Middle East for the U.S. economy are uncertain.”
The decision to leave policy unchanged was near unanimous, with officials voting 11–1.
Fed board member Stephen Miran was the lone dissenting vote, preferring to lower interest rates by a quarter point.
Despite supporting a rate cut in January, Fed board member Christopher Waller voted with the committee.
During his post-meeting news conference, Fed Chairman Jerome Powell reiterated that it was “too soon to know” the implications of the Iranian conflict.
“Near-term measures of inflation expectations have risen in recent weeks, likely reflecting the substantial rise in oil prices caused by the supply disruptions in the Middle East,” he said.
But the shock of surging oil prices—to growth or employment—could be offset by higher energy production.
“We’re a net exporter of energy,“ Powell told reporters. ”So any effects on employment and economic activity and spending would be offset to some extent by the fact that our oil companies will be more profitable, and they may even do more drilling.
“They’re going to make a reasoned, careful judgment that we’re going to have higher oil prices for an extended period.”
Still, Powell said, the Fed is in a “difficult situation” as it attempts to balance upside inflation risks and downside labor market challenges.
“So we’re in a difficult situation, and we feel like our framework calls on us to balance the risks, and we feel like where we are now is just kind of on that borderline, the higher borderline of restrictive versus not restrictive,” he said.
By Andrew Moran
