The Fed kept up its ‘wait and see’ approach to the economic uncertainty sparked by the Iran war.
The conflict has pushed up energy costs and is also feeding through to higher prices at the pump and more expensive grocery bills.
Against that backdrop, the Fed decided it was best to keep interest rates steady as it waits for clarity on how long the conflict will last – and how bad the fallout becomes.
Hopes of any imminent rate cuts were dashed when it was revealed March’s inflation figure had shot up to 3.3%, the highest it has been since May 2024, but the Federal Reserve’s statement suggested it would cut rates when it next meets.
However, Samuel Tombs, chief US economist at Pantheon Macroeconomics, said Wednesday’s fresh oil price bounce, spurred by expectations the US will maintain its blockade of Iranian ports for the long haul, could see rate cuts delayed until 2027.
Central banks tend to raise rates when inflation is high to discourage people from spending and encourage them to save, something they hope will bring the rate of price rises down. They then tend to cut interest rates when the economy is weak to encourage spending and investing to boost job creation and economic growth.
