The Federal Reserve held steady on interest rates Wednesday.
At the conclusion of the Federal Open Market Committee meeting, members kept the target interest rate at 3.5 to 3.75 percent. It was the second straight meeting for members to keep rates paused after a series of cuts to end 2025.
“From last September through December, we lowered our policy rate by 3/4 percentage point, bringing it within a range of plausible estimates of neutral. This normalization of our policy stance should continue to help stabilize the labor market while allowing inflation to resume its downward trend toward 2 percent,” said Federal Reserve Chairman Jerome Powell.
“But the implications of events in the Middle East for the U.S. economy are uncertain. In the near term, higher energy prices will push up overall inflation, but it is too soon to know the scope and duration of the potential effects on the economy.”
Since the end of February, gas prices have surged more than 80 cents nationwide to $3.84 per gallon, according to AAA.
Powell said the rise in gas and oil prices has impacted expectations on inflation, which had eased significantly since mid-2022. The annual inflation rate had fallen to 2.8 percent in February. The rate, minus the volatile food and energy categories, was at 3 percent in February.
“Near-term measures of inflation expectations have risen in recent weeks, likely reflecting the substantial rise in oil prices caused by supply disruptions in the Middle East. Most measures of longer-term expectations remain consistent with our 2 percent inflation goal,” Powell said.
The labor market has seen job gains drop off, but unemployment remains at 4.4 percent.
“A good part of the slowing in the pace of job growth over the past year reflects a decline in the growth of the labor force, due to lower immigration and labor force participation, though labor demand has clearly softened as well,” Powell said.
FOMC participants expect the federal fund rates to change little through the rest of the year. Their projections are for rates to be at 3.4 percent at the end of 2026 and 3.1 percent in 2027.
Powell said he realizes the American consumer is still recovering from price increases as a result of the COVID-19 pandemic.
“It will take some years of positive real earnings gains for people to feel good again,” Powell said. “When you talk to people, they do feel squeezed. There are areas where prices are still going up. Insurance, various types of insurance, are getting more and more expensive. That is catching up really from inflationary pressures that take a while to get into the price.”
Vehicle loan rates remain elevated. The average used auto loan rate in February was 14.75 percent, according to data from Cox Automotive’s Dealertrack. That was up from January’s rate of 14.06 percent.
