Fed holds interest rates steady as Iran war drives up oil prices and inflation fears | US interest rates

The US Federal Reserve kept interest rates steady for the second time this year; this was a widely anticipated move amid turmoil in the Middle East and rising energy prices.

Fed officials face a host of issues to consider at their meetings this week: rising oil and gas prices, volatile inflation that still remains above the Fed’s 2% target and a weakened job market that unexpectedly lost 92,000 jobs last month.

All but one of the committee’s 12 voting members voted to keep rates in the 3.5% to 3.75% range, resisting Donald Trump’s massive push to lower borrowing costs at the risk of rising prices in the long term. Fed Governor Stephen Miran, appointed by Donald Trump last fall, was the only dissenter.

In its statement, the Board noted that “uncertainty regarding the economic outlook remains high” and that “the impact of developments in the Middle East on the US economy is uncertain.” In new forecasts, Fed officials said they still expect a quarter-point rate cut this year; this is unchanged from January’s opinion.

U.S. stocks fell sharply Wednesday afternoon after the Fed’s statement highlighted uncertainty in oil prices. The Dow fell over 1.6%, while the S&P 500 and Nasdaq fell over 1.3%.

The Fed’s decision comes as the US and Israel approach the third week of their war with Iran. central banks around the world deciding how to weigh rapidly increasing natural gas prices and their coup in the global supply chain.

“In many ways, an energy shock is a central banker’s nightmare because it creates tension between a shaky labor market and rising inflation,” RSM chief economist Joe Brusuelas said Tuesday ahead of the Fed’s decision. “During [the Fed] “It can act to address a financial crisis by printing money and injecting liquidity into the financial system, but it cannot print oil.”

The Bank of England’s monetary policy committee is also expected to keep interest rates steady on Thursday amid global economic uncertainty.

At a press conference following the central bank’s announcement, Fed Chairman Jerome Powell acknowledged that higher energy prices would increase inflation in the near term, but said “it is too early to know the scope and duration of potential impacts on the economy.”

“The U.S. economy is doing pretty well,” he said. “We just don’t know what the effects of this will be, and no one really does.”

Powell also acknowledged that while U.S. consumer spending remains resilient and real wages have risen for nearly three years, many Americans still feel pressured.

“It will take several years of positive, real earnings gains for people to feel good again,” he said. “This makes us even more determined to return inflation to 2% permanently, if possible.”

Trump recently said rising oil prices were “a very small price to pay” to achieve his goals in Iran and a boon for American oil producers, who would make “a lot of money” from increased demand.

This is the same defiant stance he has taken on the impact of his tariffs on the global economy. U.S. inflation rose from 2.3% last April to 3% in September and fell again to 2.4% at the beginning of this year. Economists also noted that the labor market has been essentially flat since Trump’s tariffs were first announced, with only 181,000 jobs added to the economy in all of 2025, the lowest amount since the Covid-19 pandemic.

Powell said Trump’s trade and immigration policies were causing instability in the U.S. economy and that he was at odds with the president, who spent last year demanding lower interest rates.

The Fed chairman faced particular harsh criticism from Trump, who asked on social media Wednesday morning: “When will Powell lower INTEREST RATES ‘It’s Too Late’?”

Last week, a federal judge halted a criminal investigation launched by the Justice Department against Powell over renovations at the Fed’s headquarters. Powell called the investigation an “excuse” to pressure the Fed to lower interest rates, and the judge acknowledged there was a “mountain of evidence” to suggest the move was intended to put pressure on Powell.

Although the Trump administration has vowed to appeal the decision, doing so would delay the confirmation of Kevin Warsh, the White House’s pick as the next Fed chairman and who is expected to help carry out the president’s wishes to lower interest rates.

On Wednesday, Powell said that if the next Fed chairman is not confirmed by the end of his term on May 15, he will continue as chairman until his successor is confirmed, adding that he has “no intention of leaving the board until the investigation is completed in a transparent and conclusive manner.”

In another potential check on Trump’s interference in the central bank, the Supreme Court is also set to rule on the removal of Fed Governor Lisa Cook before June. The court justices were highly skeptical of the Trump administration’s oral arguments in January, while Trump-nominated judge Brett Kavanaugh questioned the possible negative effects on the economy if the White House succeeded in establishing control over the Fed board.

It was the penultimate Fed meeting for Powell, whose term ends in May after eight years as central bank governor. It’s unclear whether Powell will break precedent and choose to remain on the Fed board until his term as Fed governor ends in January 2028.

“I have not yet made a decision about whether I will continue to serve as governor after my term is over and the investigations are concluded,” Powell said in a statement Wednesday. “I will make this decision based on what I think is best for the organization and the people we serve.”