Investors had been waiting with excitement for the date of the current trading week: the US Federal Reserve’s key interest rate decision. This is what the monetary authorities decided.
• Fed leaves key interest rate stable
• Oil price shock still in sight
• Inflation remains the main issue for monetary authorities
As expected by the majority of economists, the US Federal Reserve left its key interest rate unchanged on Wednesday – it remains at 3.50 to 3.75 percent.
The policy of a steady hand in stormy times
In an environment characterized by extreme opposing forces – on the one hand, a robust service sector, on the other hand, rising commodity prices due to global conflicts – the Federal Open Market Committee (FOMC) is opting for continuity. Eleven of the twelve Central Bank Council members voted to maintain the current interest rate. Only US President Donald Trump’s advisor, Stephen Miran, voted for a reduction.
And it probably won’t be the last time that the Fed doesn’t touch interest rates: the prospect of an increase in inflation means that interest rate cuts this year are a long way off. At the end of February, the USA and Israel began attacks on Iran, and since then the war has had a dramatic impact on the global economy: Among other things, the price of oil rose to its highest level in years because shipping traffic through the Strait of Hormuz was disrupted. Recently, the United States also targeted the Iranian island of Kharg, which is important for oil exports.
Three reductions in 2025, calm so far in 2026
In 2025, the Fed cut the key interest rate three times by one step (25 basis points) due to concerns about the labor market. She then took a break at her first meeting in January of this year.
Whether the Fed will actually loosen its interest rates twice more in 2026 is now under scrutiny. “It will probably take until June before the Fed lowers the key interest rate band again by 25 basis points to 3.25 to 3.5 percent,” commented economist Felix Schmidt from the private bank Berenberg. The scenario is only likely to occur if the situation in Iran eases.
Hardly any reasons for further easing
However, Trump’s constant call for interest rate cuts is likely to have no consequences for the time being. If the Fed loosens interest rates, this is likely to further fuel inflation. In February, consumer prices rose by 2.4 percent year-on-year – but before the consequences of the Iran conflict. “If the oil price shock persists or intensifies, even a further tightening of monetary policy could no longer be ruled out,” wrote economist Lena Dräger from the Kiel Institute.
The Fed now expects an inflation rate of 2.7 percent for the current year (December: 2.4 percent). Meanwhile, the central bank expects economic growth of 2.4 percent this year. The US economy even benefits from the situation to some extent, as the USA is a net exporter of oil.
Consequences of the oil shock unclear
Jerome Powell has also expressed great uncertainty about the impact of the rise in oil prices caused by the Middle East conflict on inflation and the economy. “We just don’t know,” Powell told reporters. “The impact of events in the Middle East on the US economy is uncertain. In the short term, higher energy prices will fuel headline inflation, but it is too early to estimate the extent and duration of the potential impact on the economy,” Powell said at the press conference following the decision.
The Fed chief’s personnel remains a topic of discussion
In addition, his personnel future is coming into focus at the central bank, as Powell’s term of office ends in May 2026. US President Donald Trump has nominated Kevin Warsh as his successor, but still needs Senate approval. Trump hopes to indirectly achieve interest rate easing. However, Warsh must ensure the Fed’s independence. A legal dispute is causing additional tension: a federal judge stopped investigations by the Justice Department against Powell. Senator Thom Tillis is now threatening to delay Warsh’s confirmation until the investigation is completed – which could ultimately result in an extension of Powell’s term.
Federal Reserve Chairman Jerome Powell said Wednesday he would remain in office if his successor is not confirmed by May, the end of his current term. He emphasized that this is required by law and that the Fed has used this procedure several times, including in his own case. He added that the central bank would do the same in this case too.
Fed decision has global impact
The US Federal Reserve’s decision has a global impact. Remaining at high interest rates tends to support the US dollar, but keeps financing costs for companies high. The environment for daily and fixed-term deposits remains attractive for savers. Other forms of investment such as gold, stocks or cryptocurrencies also react sensitively.
The European Central Bank’s interest rate decision this Thursday is eagerly awaited. The ECB is likely to keep the deposit interest rate, which is important for banks and savers, at 2.0 percent. Recently, ECB Council member Peter Kazimir had a faster one Interest rate increase brought into play as a possible scenario.
Claudia Stephan, editorial team at finanzen.net with material from dpa-AFX
