Washington: The U.S. Federal Reserve on Wednesday held its benchmark interest rate steady for the third consecutive time, citing "elevated" inflation and a "high level" of economic uncertainty stemming from the ongoing Middle East conflict. The central bank decided to leave the rate unchanged at the 3.5-3.75 percent range during the two-day Federal Open Market Committee (FOMC) meeting, which was likely to be the last rate-setting meeting under Chair Jerome Powell as his chairmanship is set to expire on May 15.
According to Yonhap News Agency, during a press conference, Powell stated he would remain as a Fed governor "for a period of time" but plans to "keep a low profile." He emphasized his commitment to staying on the Fed board until an investigation into the renovation of the Fed headquarters is "well and truly" over. The decision to maintain the current rates has resulted in a gap of up to 1.25 percentage points between the key rates of South Korea and the United States.
Powell highlighted that "inflation has moved and is elevated, in part reflecting the recent increase in energy prices." He also noted that developments in the Middle East are contributing to significant uncertainty regarding the economic outlook. The central bank's pause on adjusting rates comes amidst a 3.3 percent rise in U.S. consumer prices in March compared to the previous year, marking the most significant annual increase since May 2024, alongside surging oil prices affected by the U.S.-Israeli war against Iran.
Among the FOMC members, three did not support the inclusion of an "easing bias" in the statement, which would indicate potential future rate cuts, although they did agree to maintain the current rate. One member expressed dissent by voting against the pause, advocating for a quarter percentage point rate reduction.
Powell remarked that the central bank's position is "at the high end of neutral or perhaps mildly restrictive," which he believes is "just the right place to be," allowing the bank to observe how situations evolve before taking further action. This press meeting marked Powell's last as the Fed chair, with U.S. President Donald Trump's nominee for the position, Kevin Warsh, currently undergoing the Senate confirmation process. The Senate Banking Committee has voted to advance Warsh's nomination for a final vote.
Reflecting on his tenure, Powell recalled Trump's repeated criticisms for not accelerating interest rate cuts and legal challenges faced by the central bank. He expressed concern that these unprecedented legal actions could undermine the central bank's ability to conduct monetary policy independently of political influences.
Powell emphasized the importance of the central bank's independence, which is derived from both legal statutes and established customs. He highlighted the necessity of maintaining boundaries between the Fed and the administration, as well as between the Fed and the Treasury Department. Powell's term as Fed chair will conclude next month, although his role as a Fed governor will continue until January 2028.