Fed holds rates for third straight meeting as Middle East conflict clouds outlook

Interest rates are not moving. The Federal Reserve announced a continued pause on interest rate cuts after the conclusion of the Federal Open Market Committee meeting today (April 29). 

The Fed has now held rates steady for three straight meetings, keeping its benchmark rate at 3.5 to 3.75 percent.

Zooming in: A slowdown in the labor market with low job gains and higher energy costs due to the conflict in the Middle East were both attributed to the decision.

Worth noting: The meeting was Powell’s last as the Fed Chairman.

He announced he will be staying with the Fed as a governor, awaiting assurances that the criminal investigation into alleged false statements regarding Fed headquarters renovation costs was truly over. The Justice Department announced last week it was ending its investigation.

Also today, Powell’s presumptive replacement, Kevin Warsh, had his nomination for the post advance out of the Senate Banking Committee. The nomination will now head to a full Senate vote.

Regarding the auto industry: The Fed’s rate decision is expected to have little impact on auto financing, where rates have remained elevated. The average interest rates remain between 9.7% (new) and 14.36% (used), according to Cox Automotive’s Dealertrack data.

In fact, the Fed’s decision, given the high gas prices and the labor market, was not a surprise to many in the automotive industry, including Cox Automotive Chief Economist Jeremy Robb.

Looking ahead: Robb added, “The likely incoming Fed Chair Kevin Warsh will inherit a difficult job—one made more challenging by persistent inflation pressures, uneven labor data, and the need to preserve central bank credibility amid a heavy political presence. The inflation story could improve in the second half of the year, but in the current environment, there is little reason to expect any movement by the Fed.”

Powell noted that given substantive inflationary shocks in the past six years, from the pandemic, Ukraine invasion, tariffs, and the conflict in Iran, the economy remains resilient and consumer spending remains high. 

“That's what the banks will tell you, credit card companies will tell you. The retail sales numbers we got to see recently.  People are still spending. How long can that go on in a world where, if gas prices were to go up a bunch more, that's taking spendable money out of people's pockets?  Right now, we don't see much slowdown yet… But you think you will because people have a certain amount of money they spend. If they're spending 25% more on gas or something like that, that's going to come out of other spending. But we don't see it yet.”