US Fed, 3rd consecutive interest rate freeze... "High inflation and uncertain economic outlook"

Jerome Powell, Fed Chair

The Federal Reserve (Fed), the central bank of the United States, froze its benchmark interest rate at 3.50-3.75% on the 29th (local time).

The Fed held the second day of its regular Federal Open Market Committee (FOMC) meeting today and decided to maintain the benchmark interest rate.

The surge in international oil prices due to the Iran war, which heightened inflation concerns, is analyzed to have influenced this decision.

While the Fed lowered interest rates three consecutive times in September, October, and December last year, this year it has made three consecutive decisions to freeze rates, following January and March.

With this decision, the interest rate gap between Korea (2.50%) and the US remains at 1.25%p based on the upper bound.

Regarding the background of the interest rate freeze, the Fed stated, "Inflation remains elevated, partly reflecting recent increases in global energy prices," and "Developments in the Middle East are creating heightened uncertainty for the economic outlook."

It also stated, "Recent indicators suggest that economic activity has been expanding at a solid pace," and "Job gains have remained low on average, and the unemployment rate has been largely unchanged over the past few months."

The Fed stated, "The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run," and that it will carefully review economic indicators, changes in economic outlook, and risk factors in future benchmark interest rate decisions.

It added, "The Committee is prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals." This was interpreted as hinting at the possibility of future interest rate cuts.

In the Fed's monetary policy decision statement today, 8 members voted in favor, while 4 expressed dissenting opinions (minority opinions differing from the decided content). This is the first time in 34 years, since October 6, 1992, that four official dissenting votes have been cast in a Fed monetary policy decision.

Fed Governor Stephen Myron, known as 'Trump's economic strategist,' alone advocated for a 0.25%p interest rate cut, opposing the rate freeze.

Three other committee members, Beth Hammack, Neel Kashkari, and Lorie Logan, voted for the rate freeze but opposed including a 'dovish stance' in the statement that would signal future rate cuts are more likely than rate hikes.

The New York Times (NYT) reported that these three committee members wanted the Fed to more clearly indicate in its statement that future actions might not necessarily be interest rate cuts.

With inflation remaining high and posing a risk of further increases, acting as a constraint on interest rate cuts, and concerns about a slowdown in the job market making interest rate hikes difficult, the Fed's dilemma surrounding future rate decisions is expected to deepen.

In particular, uncertainty is expected to increase further when Chairman Powell steps down next month and a new Fed leadership takes over.

Kevin Warsh, next Fed Chair nominee

The next FOMC meeting will be held on June 16-17.

When current Chairman Powell steps down after his term ends on May 15, Kevin Warsh, the nominee for the next chairman, will preside over that meeting. The Senate Banking Committee's confirmation bill for Warsh was passed today, and his confirmation will be finalized after a vote in the full Senate.

As U.S. President Donald Trump continues to pressure for benchmark interest rate cuts, attention is focused on what interest rate decisions the Fed will make under Warsh's leadership.

Warsh, the nominee, previously stated at his Senate confirmation hearing that "presidents tend to prefer lower interest rates" but also "the Fed's independence rests with the Fed itself," indicating his stance to make independent monetary policy decisions.

When asked by reporters at the White House today if he believes Warsh, once confirmed, could persuade other Fed governors to cut interest rates, President Trump said, "We'll have to see, but he should," adding, "Because now is the right time to lower interest rates."

Chairman Powell held his final press conference as chairman today and, regarding the US Department of Justice's investigation into allegations of overspending on the Fed building renovation targeting him, stated, "I am waiting for the investigation to be concluded definitively and transparently," adding, "I am awaiting the results and will step down when deemed appropriate."

Even after his term as chairman ends, Chairman Powell is expected to serve out his remaining term as a governor until January 2028 and exercise voting rights on interest rate decisions. With his decision to remain, President Trump has to delay the opportunity to appoint his own nominee to the Fed Board of Governors.