Fed Holds Rates Steady

The U.S. Federal Reserve has decided to leave interest rates unchanged, keeping them in the range of 3.5% to 3.75%. The decision comes despite rate cuts at the end of last year and growing uncertainty related to the situation in the Middle East.

The move reflects mixed signals from the economy. The labor market is clearly slowing, while inflation remains above the central bank’s 2% target. At the same time, the economy continues to expand at a solid pace, although job growth has moderated.

Fed Chair Jerome Powell emphasized that the central bank remains ready to respond to incoming data. He noted that weaker demand for workers and declining immigration are contributing to slower employment growth. In addition, goods prices are still rising, partly due to tariffs that increase costs for consumers.

Core inflation currently stands at around 3%, still well above the target. According to Powell, a significant portion of this increase—between half and three-quarters—can be attributed to tariffs. The Fed wants to see a clear decline in this component before considering the impact of higher energy prices.

Uncertainty is also heightened by the conflict in the Middle East. The Fed notes that its effects on the U.S. economy are difficult to predict. Higher oil prices could push inflation up, but energy companies are likely to boost production only if the price increases prove sustainable.

Powell also pointed to unusual conditions in the labor market. Job growth is very low, creating a fragile balance but also raising the risk of a broader economic slowdown.

Experts expect the Fed to remain cautious and closely monitor developments. While future rate cuts are possible, their timing will largely depend on how the geopolitical situation evolves and how energy prices affect the economy.