Adds Powell comments, background
US Federal Reserve policymakers held their target interest rate unchanged Wednesday, noting that inflation is "elevated" on the back of the Mideast Gulf war.
"There's headline inflation coming out of the Gulf and we don't know how much that will be," outgoing Fed chair Jerome Powell said in his final press conference. "We think our policy stance is in a very good place for us to wait and see."
The Fed's Federal Open Market Committee (FOMC) kept the federal funds rate at 3.5-3.75pc in its third meeting of 2026, following quarter-point cuts in September, October and December last year.
"Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook," the FOMC said in a statement. "The Committee is attentive to the risks to both sides of its dual mandate" of maintaining low inflation and fostering maximum employment.
Of the 12 voting FOMC members, four voted against the decision, with one voting to cut the rate and three voting against the "easing bias" language in the statement. Those were the most dissenting votes since 1992.
Powell, whose term as chairman expires on 15 May, said he would stay on as a Fed governor until a federal investigation into alleged cost overruns at a Fed building upgrade is "truly over with finality and transparency". The Justice Department recently closed its criminal investigation but Powell said the US attorney for the District of Columbia or the Federal Reserve's own watchdog could reopen the probes, which he has said were originally whipped up by Trump as part of an effort to undermine Federal Reserve independence.
"The institution is being battered over these things," he said. "It's not so much independence. It's really the ability to do monetary, to make monetary policy without political considerations."
Powell congratulated Kevin Warsh, a former Fed governor and Trump's nominee to replace him at the helm of the Fed, for advancing out of the Senate Finance Committee earlier Wednesday for a final full Senate confirmation vote.
"Misbehaving" inflation
"The labor market shows more and more signs of stability, whereas inflation is kind of misbehaving," Powell said. "So we can wait here and see how things work out before we act" to move rates.
US GDP growth is on track to have risen by a 1.8pc annual pace in the first quarter from just 0.5pc in the fourth quarter, according to Pantheon Macroeconomics ahead of a government report Thursday. Still, job growth in the first three months of 2026 averaged just 68,000/month. Meanwhile, inflation risks have surged on the war, with year-ahead inflation expectations rising to 4.7pc in the University of Michigan's latest consumer sentiment survey for the end of April, up from 3.8pc in March.
The Fed, in its latest median economic projections released at the prior meeting in March, continued to pencil in a single quarter-point rate cut this year, unchanged from the prior projection in December. Policymakers still expect one more quarter-point cut in 2027.
