Federal Reserve Holds Rates Steady! Powell: Middle East Situation May Push Up Inflation, GDP Forecast Raised to 2.4%

The Fed maintains interest rates at 3.5% to 3.75%, with Powell emphasizing highly flexible policy. GDP has been revised upward to 2.4%, while inflation and Middle Eastern oil prices remain key variables.

Federal Reserve Chair Jerome Powell spoke after the rate decision meeting. The Fed announced that the target range for the federal funds rate remains at 3.5% to 3.75%. Powell stated that the Fed will continue to monitor economic data and external risks to guide inflation back to its target and maintain a stable labor market. Future monetary policy will be highly flexible. The development of the Middle East situation’s impact on the U.S. economy remains uncertain, and the Fed will continue to focus on risks.

Fed: Neutral interest rate within a reasonable range, federal funds rate unchanged

The Federal Reserve decided to keep the federal funds rate target range at 3.5% to 3.75%. Powell pointed out that after lowering rates by 0.75 percentage points from September to December last year, the current rate is within a reasonable estimate of the “neutral interest rate,” which has guided inflation back to the 2% target trajectory.

The Fed expects the economy to grow steadily

According to the latest economic indicators, U.S. economic activity shows signs of stable expansion, with consumer spending and business fixed investment demonstrating resilience, serving as the main drivers of growth. However, the real estate market remains weak under the current interest rate environment, indicating differing sensitivities across industries to monetary policy. According to the Summary of Economic Projections (SEP), Fed members have raised their outlook for economic growth, estimating this year’s real GDP growth at 2.4%, and next year’s at 2.3%, both higher than previous forecasts made in December.

Labor market demand slowing

The labor market is currently stable but showing signs of sluggish growth. The unemployment rate remained at 4.4% in February and is expected to stay at that level through the end of the year. Over the past year, employment growth has slowed, mainly due to structural factors such as reduced immigration and declining labor force participation, which have limited labor supply growth. Powell noted that labor demand has noticeably softened, with overall data—including job openings, recruitment activity, and nominal wage growth—showing little change.

Middle East turmoil may temporarily boost inflation

While inflation pressures have eased from their peaks in 2022, they remain above the long-term 2% target. As of February, the personal consumption expenditures (PCE) price index increased by 2.8% year-over-year, with core PCE at 3.0%. Recent inflation data reflect the impact of tariffs on goods prices. Additionally, turmoil in the Middle East has led to rising oil prices, which could temporarily push up overall inflation. However, the long-term effects on the U.S. economy remain uncertain. The Fed expects this year’s PCE inflation rate to be 2.7%, and next year to decline to 2.2%. These forecasts have been slightly revised upward from previous assessments, indicating ongoing challenges in fighting inflation.

Powell emphasizes future monetary policy will be highly flexible

Powell stressed that future monetary policy will not follow a preset path but will involve highly flexible decision-making. The appropriate level of the federal funds rate by the end of this year is projected at 3.4%, and 3.1% by the end of next year. These estimates are consistent with assessments from the end of last year. The Fed will adjust rates at each meeting based on the latest economic data, outlook changes, and risk assessments. The core goal remains full employment and price stability. Regarding external uncertainties such as the Middle East situation, the Fed will closely monitor risks and their potential impact on the U.S. economy.

• This article is reprinted with permission from: 《Chain News》
• Original title: 《Federal Reserve Chair Powell’s Post-Decision Remarks Emphasize that Monetary Policy Is Not Pre-Set and Will Be Highly Flexible in the Future》
• Original author: DW