Adds Powell comments, background.
Federal Reserve policymakers kept their target interest rate unchanged Wednesday, citing uncertainty from "developments in the Middle East" prompted by the Iran war.
The Fed's Federal Open Market Committee (FOMC) kept the federal funds rate at 3.5-3.75pc in the second meeting of 2026, following quarter-point cuts in September, October and December last year.
"Uncertainty about the economic outlook remains elevated," the FOMC said in its statement. "The implications of developments in the Middle East for the US economy are uncertain."
In its latest median economic projections, released Wednesday, the Fed continued to pencil in one quarter-point rate cut this year, unchanged from the prior projection in December. Policymakers still see one more quarter-point cut in 2027.
Still, the Fed views its favorite measure of inflation rising to 2.7pc to end this year from a prior forecast for 2.4pc. Policymakers see inflation falling to 2.2pc next year.
They see GDP growth ending the year up an annual 2.4pc from a prior forecast of 2.3pc, with unemployment ending the year at 4.4pc, unchanged from the prior forecast.
Regarding the inflationary shock of the US-Iran war, Powell said economists generally "look through energy shocks" and consider them transitory. He said the longer-term progress in bringing inflation down to the Fed's target of 2pc will be more accurately measured by how quickly the economy navigates the one-time impacts of Trump's tariffs.
Still, Powell, said the net impact of the oil shock will "still be some downward pressure on spending and employment and upward pressure on inflation."
Overall, he said, regarding the economy, "growth is solid, the inflation overshoot is mainly from goods (inflation) and the tariffs. The unemployment rate is little changed, with little growth in labor demand or supply," which he attributed largely to Trump's crackdown on immigrants.
Buffeted by Trump's on-again/off-again tariff wars that make it harder for businesses to make long-term investment and hiring decisions, wide-ranging cuts to the federal bureaucracy and mounting deficit spending, the economy has shown clear signs of slowing.
The US economy slowed to an annual 0.7pc pace in the fourth quarter of 2025, mostly on lower consumer and government spending prompted by the partial shutdown. It was sharply lower than the average 2.5pc pace in the first nine months of the year. Job growth slowed to about 247,000 in 2025, down from an estimated 1.5mn in 2024, according to Labor Department data.
Powell, whose term in office expires on 15 May, said he would stay on as a Fed chair until his successor, former Fed governor and Trump nominee Kevin Warsh, is confirmed by the Senate. He added that he would also stay on at the board of governors of the Fed until a Justice Department criminal investigation into his congressional testimony regarding cost overruns at a Fed building project is "well and truly over with transparency and finality." A federal judge last week overturned Justice subpoenas related to the case, saying the purpose of the probe was to pressure Powell to lower rates or step down before his time in office expires in May. Justice has appealed the ruling.
