The Federal Reserve left interest rates unchanged at a range of 3.5% to 3.75% following its latest policy meeting, as policymakers navigate persistent inflation risks and a softening labour market against the backdrop of escalating geopolitical tensions.

The decision, widely anticipated by markets, came after a two-day meeting led by Chair Jerome Powell. Market expectations had fully priced in a pause, according to CME FedWatch data.

While the majority of officials supported holding rates steady, divisions within the committee were evident. Eight members backed the decision, but several dissented — three opposing language that hinted at future easing, and one, Stephen Miran, calling for an immediate rate cut. The level of disagreement marked one of the most notable splits in decades.

The Fed acknowledged that uncertainty tied to tensions in the Middle East continues to cloud the economic outlook. Rising energy costs have added pressure to inflation, complicating the central bank’s path forward.

Oil markets have reacted sharply to the geopolitical situation, with US crude climbing above $107 per barrel and Brent nearing $120 — levels not seen since 2022. Higher fuel costs are already feeding through to consumers, with petrol prices rising significantly in recent months.

At the same time, labour market conditions remain subdued. Job growth has slowed compared to earlier periods, while unemployment has shown little movement. Recent data indicates only modest hiring activity, alongside limited changes in job openings and wage growth.

Speaking after the decision, Powell noted that the cooling in employment growth is partly tied to slower labour force expansion, including reduced immigration and participation. However, he emphasised that broader labour indicators have not shifted dramatically in recent months.

The policy announcement comes amid heightened political scrutiny of the central bank. Kevin Warsh, nominated by Donald Trump as a potential successor, has advanced in the confirmation process, intensifying debate around the Fed’s independence.

Despite speculation over leadership changes, Powell confirmed he intends to remain on the Fed’s Board of Governors beyond his term as chair, which extends through 2028. He reiterated concerns about political interference, warning that pressure on the institution could undermine its ability to operate independently.

“I remain committed to ensuring monetary policy decisions are made without political influence,” Powell said, adding that recent developments have reinforced his decision to stay on in his role for the time being.

Financial markets reacted cautiously to the Fed’s stance. Major US indices moved lower in midday trading, with the Nasdaq Composite slipping slightly, while the Dow Jones Industrial Average and the S&P 500 also posted modest declines.

With inflation pressures lingering and global risks elevated, the Fed signalled that any move toward rate cuts may take longer than previously expected.

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