Given the current economic uncertainty as a result of the war in Iran, the US Federal Reserve decided not to make any changes for the time being Key interest rate to be carried out. The Federal Reserve (Fed) is reacting cautiously to the consequences of the conflict, which are difficult to assess. “The impact of developments in the Middle East on the US economy is uncertain,” the Fed said. The interest rate range remains at 3.5 to 3.75 percent, as the Central Bank Council in Washington announced.
It is the second time in a row that the… US Federal Reserve takes a break and doesn’t change the interest rates any further. It had previously cut interest rates three times last year to support the economy.
At the end of February, the USA and Israel launched attacks on the Iran started. Since then, the war has had a noticeable impact on the global economy. An important reason for this is that shipping traffic through the Strait of Hormuz is disrupted. It is one of the most important routes for global oil trade. The USA also recently targeted the Iranian island of Kharg, which plays a central role in oil exports.
Trump adviser voted for reduction
All of this increases concerns that there could be shortages in oil supplies. This fear is causing oil prices to rise sharply – to their highest level in years. In the USA, gasoline prices have therefore already risen significantly. This in turn can lead to many everyday prices continuing to rise and inflation to increase.
Eleven of the twelve Central Bank Council members voted this Wednesday to maintain the current interest rate. Only US President Donald Trump’s advisor, Stephen Miran, voted in favor of a reduction, as at previous meetings.
Trump had recently repeatedly called on the independent central bank to lower interest rates. He also renewed this demand at the beginning of the week. The monetary authorities around Fed Chairman Jerome Powell have now decided against it again.
Trump’s attempt to influence the Fed
With its decisions on key interest rates, the US Federal Reserve is trying to achieve two goals at the same time: prices should remain as stable as possible and at the same time as many people as possible should have jobs. The key interest rate is an important control instrument. If it is high, loans become more expensive and companies invest less, consumers spend less money and the economy grows more slowly. If it is low, loans become cheaper, which stimulates investment and consumption and can therefore create more jobs. However, the risk then also increases that prices will rise more quickly overall, i.e. inflation will increase.
Trump keeps calling for lower interest rates because he wants to strengthen the economy. Cheap loans are intended to help companies achieve more Investments move and promote consumption. But these demands are likely to remain without consequences for the time being. The central bank wants to avoid rising inflation and this could be driven further by lower interest rates.
Fed expects inflation to rise
Inflation could soon rise anyway. Although consumer prices were still at 2.4 percent year-on-year in February, this data dates back to before the war with Iran. The consequences of the conflict, especially the significantly higher oil prices, will probably only be noticeable in prices in the coming months.
The Fed now expects an inflation rate of 2.7 percent for the current year. In December it was 2.4 percent. Inflation is expected to be 2.2 percent in 2027 (previously: 2.1 percent). Meanwhile, the central bank expects economic growth of 2.4 percent this year, followed by 2.3 percent in 2027. Previously, the experts expected 2.3 percent this year and 2.0 percent next year.