US | Fed emphasizes increased uncertainty as it stays on hold

Summary

The FOMC kept interest rates unchanged at 3.50-3.75%, citing elevated uncertainty due to the conflict in Iran. Growth projections were revised upward, but inflation forecasts also rose driven by oil prices and tariffs. The Fed will maintain a cautious, wait-and-see approach with little urgency to resume rate cuts.

Key points

• Key points:
• The Fed's statement continued to describe economic activity as expanding at a solid pace, looking past the temporary drag from the government shutdown, while the labor market remains broadly stable.
• Median GDP growth projections for 2026 rose to 2.4%, and the longer-run estimate increased by 0.2 percentage points to 2.0%, an optimistic outlook attributed by Powell to stronger productivity.
• Both headline and core PCE inflation were revised up to 2.7% for this year, reflecting the expected pass-through from higher oil prices and the slow unwinding of tariff-related one-off effects.
• The dot plot shifted modestly in a more hawkish direction, with fewer participants projecting lower rates than in December, although the median path still points to one rate cut this year.

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