Markets were in agreement before the announcement that there would be no change. The decision was made by an 11-1 vote, and members are signaling that there will be a decrease in rates during the year.
“The implications for the US economy of developments in the Middle East are uncertain,” the Fed said.
Uncertainty, Landeborn says, is high. Fed Chairman Jerome Powell mentioned several times during his press conference that inflation has been above target for five consecutive years.
They would probably have left the interest rate unchanged anyway, even if the oil price rise had not occurred, Landeborn says.
"Fair"
President Donald Trump's tariffs have started to create some upward pressure on inflation with higher prices, she says. She says the Fed wants to see that effect ebb before lowering rates.
So it is reasonable in this situation to wait.
Landeborn also believes that the Fed, like other central banks, got a little burned during the pandemic. Then they waited too long and had to raise interest rates sharply in a short time to catch up, she says. That's why they're taking the safe bet rather than the uncertain one when it comes to the effect of the Iran war on inflation.
That is something that is fairly fresh in our minds. So now that we have a new potential source of inflation, we would rather wait a bit than lower and be accused of poor timing if inflation rises again. As he says, they cannot judge when this crisis will be over.
Powell remains in office
Jerome Powell's term as Fed chairman runs until May. But as a member of the central bank's board, he can remain in office until 2028.
At the press conference, Powell, who is under constant pressure from Trump to lower interest rates, said he will not leave the board until the Justice Department's criminal investigation into the Fed - linked to a renovation of the central bank's offices - is completed.
The threat of prosecution is controversial and Powell has received support both nationally and internationally.
