A drop in inflation in the United States seems once again out of reach for the Federal Reserve (Fed), which is monitoring the price shock from the Middle East war.
Following a two-day meeting, the central bank of the world’s largest economy unsurprisingly kept its interest rates unchanged on Wednesday – they have been between 3.50% and 3.75% since December.
The changes are elsewhere: it has raised its inflation forecast for the United States.
Before the war and the surge in energy prices, the central bank thought that price increases could be contained around 2.4% by the end of 2026.
Now, based on their median projections, monetary policymakers see almost no progress during the year with inflation at best at 2.7%, down from 2.8% in January.
The cost of living is a recurring subject in the country. Donald Trump promised to improve the purchasing power of Americans, but several of his policies (tariffs, war against Iran) have a tangible impact on prices.
The war in the Middle East, and the surge in energy prices that follows, will accentuate inflation “in the short term,” observed Federal Reserve Chairman Jerome Powell at a press conference.
The Fed is “very aware” that the United States has experienced inflation levels above what the institution aims for (2%) for the past five years, he emphasized, citing “a series of shocks” (Covid-19, wars, tariffs).
However, he warned against hasty conclusions.
“Nobody knows” what the real repercussions of the conflict in the Middle East will be on the American economy and therefore monetary policy, he stated.
The head of the Federal Reserve took care to rule out any scenario of “stagflation” for now, a mix of inflation and low growth, notes AFP’s Diane Swonk, economist at KPMG.
Jerome Powell “doesn’t like that word” because it reminds him of the episodes “of the 1970s when there was unemployment and double-digit inflation,” she believes, noting that the United States is indeed facing a risk of “stagflationary type”.
– A decrease, maybe –
The Fed was more united than on other recent occasions.
Eleven out of twelve officials voted for the status quo.
Only Governor Stephen Miran, former economic advisor to Donald Trump in office since September, wanted a quarter-point rate cut.
Overall, American central bankers lean towards just one easing (a quarter-point cut in benchmark rates) this year.
In detail, a good number of them do not see any at all. None foresee an increase, according to the anonymous statement released by the Fed.
The inertia on rates is not to Donald Trump’s liking, who tirelessly demands a much more accommodating policy to reduce borrowing costs for Americans and the federal government.
“When will +Too late+ Powell lower the RATES?” he wrote on his Truth Social platform, before the decision.
The American president asserts that the impact of the conflict on energy prices will be short-lived.
Meanwhile, the increase in pump prices is unpopular, and the U.S. administration announced several measures on Wednesday to calm prices.
– Status quo also on succession –
During his press conference, Mr. Powell took a few seconds to clarify his own situation.
He stated that he would not leave the Fed until a procedure against him “will not be well and truly completed, in a transparent and definitive manner”.
Mr. Powell was referring to an initiative by a prosecutor close to Donald Trump regarding the cost overrun of the renovation works at the Fed’s headquarters in Washington.
The move was interpreted, including by elected officials from the presidential camp, as a targeted attack on the independence of the central bank.
Jerome Powell’s term as chair ends in May, but he could stay longer if the confirmation of his designated successor, Kevin Warsh, is blocked in the Senate.
