Central bank’s hotly anticipated announcement arrives amid continuing fears of an inflation spike
The Federal Reserve said it was holding interest rates steady on Wednesday afternoon, leaving rates unchanged in its third decision of the year as it continues to weigh up the impact of the US-Iran war on the national economy.
The central bank’s announcement means the target range for the federal funds rate remains between 3.5% and 3.75%, a decision that held no surprises for financial markets – which had already priced in a hold.
The CME Group’s FedWatch tool, a gauge of experts’ views toward upcoming Fed decisions, showed a 100% chance yesterday that the central bank would keep rates unchanged. Experts believed the Fed would prolong its wait-and-see approach as the conflict in the Middle East stirred fears of an inflation flareup and potential hit to the economic outlook.
While the Fed’s trendsetting interest rate doesn’t directly move mortgage rates, Fed decisions can significantly influence 10-year Treasury yields because they offer a strong clue of how strong or weak the central bank views the US economy.
The decision will likely face criticism from President Trump, who’s frequently clashed with Fed chair Jerome Powell on the central bank’s approach to rates, and market watchers will be keeping a close eye on the outgoing Fed chair’s upcoming press conference – scheduled for 2:30 p.m. ET – to see if he offers any clues on his likely timeline for departure.
Powell’s term ends on May 15, after which he’s expected to be replaced by Kevin Warsh, a Trump nominee who many see as more amenable than Powell to the president’s views that interest rates should be substantially lower.
Wednesday’s decision means the Fed has yet to move interest rates in 2026. Cuts were viewed as a strong possibility earlier in the year, but oil price shocks caused by the war in Iran appear to have taken that prospect off the table for now.
Still, even a quick end to the Iran conflict wouldn’t necessarily clear the way for rate cuts, according to First American senior economist Sam Williamson.
He told Mortgage Professional America that a calmer oil market “would not settle the policy question on its own” and noted that while the national labor market has softened, it has “not clearly broken.”
The mortgage industry, meanwhile, saw little in the buildup to the decision to suggest that it would result in anything other than a rate hold. Glen Weinberg of Fairview Lending told Mortgage Professional America he would have been "very surprised" if the Fed opted to move rates instead of holding steady. "There is no impetus to do anything based on the current data," he said.
The central bank’s next decision on interest rates will arrive on June 15, with further announcements scheduled in July, September, October, and December.
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