Results of Powell's penultimate meeting as Chair revealed
The United States Federal Reserve has elected to hold its overnight interest rate steady at 3.5 to 3.75 per cent following the March meeting of the Federal Open Markets Committee (FOMC) on Wednesday.
The decision to hold had been priced in as a near certainty by bond markets ahead of the meeting, following the Bureau of Labor Statistics' Producer Price Index report released earlier on Wednesday. That report found the PPI had risen far faster than expected, rising 0.7 per cent on the month against an expected 0.3 per cent increase. The PPI report points to a worrying trend of higher inflation in the United States, which could very well be exacerbated by the ongoing US-Israeli war with Iran which has seen the Strait of Hormuz shut and oil prices rise significantly.
"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," a statement accompanying the decision reads. "The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The implications of developments in the Middle East for the U.S. economy are uncertain. The Committee is attentive to the risks to both sides of its dual mandate."
On the back of high inflation and the likely impacts of this conflict, markets have revised their outlook for Fed policy this year from two cuts down to one, coming right near the end of the year. The PPI report now has higher odds of no cuts coming in 2026. Speaking with Wealth Professional ahead of the PPI report, RBC GAM Senior Economist Josh Nye said he still expects two interest rate cuts this year, but that those cuts will come later than markets had anticipated in January.
This is the second-last meeting of the FOMC with Jerome Powell as Chair. His term is set to end in May with President Trump's nominee Kevin Warsh expected to recieve approval by the US Senate. That process has been complicated somewhat by a Department of Justice probe into the US Fed under Powell. Republican Senator Thom Tillis says he will block Warsh's nomination in the Senate Banking Committee until that probe is resolved.
The decision to hold was supported by every moember of the FOMC, with the exception of recent appointee Stephen I. Miran, who voted for a cut of 25 basis points.
