The Federal Reserve left its short-term interest rate target unchanged on Wednesday.
The decision to hold the benchmark federal-funds rate steady in a range between 3.5 percent and 3.75 percent was approved on an 11 to 1 vote. Fed governor Stephen Miran, appointed to fill an unexpected vacancy last year, dissented.
The Fed is grappling with an unusual level of economic uncertainty. The Iran war has sent oil prices shooting upward, recently surpassing $105 a barrel, creating both worries about inflation and an economic slowdown. The Supreme Court recently overturned the Trump administration’s Liberation Day tariffs, which the Fed had viewed as likely to push inflation higher, but the Trump administration responded with a new, slightly lower, tariff regime.
Last week, the Department of Commerce said the personal consumption expenditure price index—the Fed’s preferred gauge of inflation—had risen 2.8 percent in January from a year ago, still uncomfortably above the Fed’s two percent target. The core reading, which excludes volatile food and energy prices, rose 3.1 percent. Earlier on Wednesday, the Labor Department said another inflation gauge, the producer price index, jumped 0.7 percent in February and was up 3.4 percent from a year earlier.
The unemployment rate climbed to 4.4 percent in February and the economy shed 92,000 jobs, raising concerns that the labor market could be weakening. Despite the rise, that remains close to the Fed’s longer-run expectation of 4.2 percent unemployment.
The Bureau of Economic Analysis last week released a dramatic downward revision to economic growth in the final three months of last year, saying the economy grew at an annual pace of just 0.7 percent. Previously, it had estimated a sluggish 1.4 percent growth rate. For the full year, the economy grew 2.1 percent.
Despite this, the Fed’s statement announcing its rate decision was remarkably placid.
“Available indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, and the unemployment rate has been little changed in recent months. Inflation remains somewhat elevated,” the Fed said.
Along with the statement, Fed policymakers also released anonymized economic projections that showed they collectively expect just one quarter-point interest-rate cut through the end of this year, matching the median projection released in December. That’s in line with what the markets now expect. The Fed officials also penciled in a fed funds rate of 3.1 percent for the end of next year, also unchanged from the previous projection.
The Fed’s inflation projection jumped up. The median projection for PCE index at the end of this year rose to 2.7 percent, up from the earlier forecast of 2.4 percent. Core inflation is seen as rising 2.5 percent this year, up from the 2.4 percent projection in December.
On unemployment rate, the median projection remained unchanged at 4.4 percent for the end of 2026. The projection for next year rose slightly, to 4.3 percent from 4.2 percent. The longer-run projection remained unchanged at 4.2 percent.
Fed officials grew a bit more optimistic about economic growth. The median projection for GDP growth in 2026 rose to 2.4 percent, up from 2.3 percent in the projections released in December. In September, officials had projected just 1.8 percent growth for this year.