Fed keeps interest rates steady, says impact of Middle East war is 'uncertain'

The Federal Reserve left interest rates unchanged on Wednesday, maintaining its wait-and-see approach after a series of cuts in late 2025.

The Federal Open Market Committee kept its benchmark rate at 3.5% to 3.75%.

"Available indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, and the unemployment rate has been little changed in recent months. Inflation remains somewhat elevated," the committee said Wednesday in a written statement. "The implications of developments in the Middle East for the U.S. economy are uncertain."

All members of the committee voted in favor of keeping rates unchanged except Fed Governor Stephen Miran, a Trump appointee who wanted a 0.25-percentage point reduction.

At a press conference, Fed Chair Jerome H. Powell said the Fed is waiting to see more progress on inflation, as one-time price increases from President Trump's tariffs on imports filter through the economy.

Elevated readings for some prices "largely reflect inflation in the goods sector, which has been boosted by the effects of tariffs," he said.

Mr. Powell said consumer spending is resilient and business investment is expanding, while housing activity "remains weak."

"Job gains have remained low," Mr. Powell said.

He pointed to lower workforce numbers because of reductions in immigration and labor-force participation, while adding that "labor demand has clearly softened as well."

Fed decisions affect interest rates for savings, loans and investments, influencing consumer spending and business activity.

The Fed cut interest rates at three successive meetings last year, when fears about sluggish hiring outweighed worries about inflation. Central bankers are waiting to see what kind of impact those cuts have before trimming rates again.

Mr. Trump has complained about the Fed's inaction, saying lower interest rates would supercharge the economy alongside his agenda of tax cuts, deregulation and tariffs on imports.

"When is 'Too Late' Powell lowering INTEREST RATES?" Mr. Trump wrote on Wednesday on social media before the Fed decision.

Mr. Trump is cajoling central bankers as he criticizes Mr. Powell over a Fed building renovation project and tries to reshape the Fed to his liking.

A federal judge on Friday quashed the Department of Justice's criminal probe into Mr. Powell, saying subpoenas about the renovation were a pretext to harass the central banker over interest rates.

U.S. Attorney Jeanine Pirro railed against the decision as biased and said she planned to appeal.

A resolution in the case, however, would make it easier for Mr. Trump to install his Fed chair nominee, Kevin Warsh, at the central bank.

Sen. Thom Tillis, North Carolina Republican, is blocking Fed nominees in the Senate Banking Committee until the case against Mr. Powell is resolved.

Mr. Powell's term as Fed chair ends in May.

Mr. Powell said he would serve as chair pro tempore if Mr. Warsh is not confirmed by the end of his term. He also said he would like to see the criminal case resolved.

"I have no intention of leaving the board until the investigation is well and truly over, with transparency and finality," Mr. Powell said.

Mr. Powell said he has not decided if he will stay on the Fed board of governors after his chairmanship is over. He can technically stay until January 2028.

No matter who is chair, the Iran war is a wild card in economic trends.

Mr. Trump decided to join forces with Israel and launch the operation against Iran on Feb. 28 because he wanted to dismantle Iran's missile program, stop it from getting a nuclear weapon and end Tehran's support for terror proxies in the Middle East.

Iran retaliated by striking oil-rich Gulf countries and closing down the Strait of Hormuz, which carries about 20% of the world's oil supply.

Mr. Trump waived a federal law for 60 days on Wednesday to ease shipping as he struggles to get international help in reopening the strait.

Allies are reluctant to get drawn into a protracted struggle in the Middle East.

In the meantime, oil prices have risen to around $100 per barrel, pushing up gas prices for American drivers.

The national average price of a gallon of gas reached $3.84 on Wednesday, up from $2.92 a month ago, according to the AAA motor club.

"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," Mr. Powell said.

Also Wednesday, the Bureau of Labor Statistics reported that wholesale prices grew 0.7% for February, a sharper rise than expected.

The Producer Price Index rose 3.4% for the year ending in February, the largest 12-month jump since February 2025.

Rep. Brendan Boyle, Pennsylvania Democrat and ranking member of the House Budget Committee, said hiring has been sluggish and Mr. Trump's tariffs are driving up prices.

"To make matters worse, Trump's unnecessary war has driven gas prices to their highest level in years," Mr. Boyle said. "Instead of taking responsibility, the president continues to lash out at the nonpartisan Federal Reserve. It's a disgrace."