Fed holds rates amid rare dissent as energy inflation rises

The Federal Reserve kept the federal funds rate at 3.50%–3.75% after its April meeting, with members recording the most dissent on policy since 1992. The policy statement described inflation as “elevated” and cited recent spikes in global energy costs tied to the Middle East conflict.

One policymaker voted for a 25 basis point rate cut. Three others supported holding the range but opposed language that hinted at an easing bias in the statement, marking the widest split in votes in three decades. The CME FedWatch tool shows about a 93% probability the Fed will hold in June and roughly a 9% chance of a 25 basis point cut at that meeting. Markets currently price no rate moves for 2026 and a single 25 basis point cut in October 2027.

Inflation readings for March pushed higher. The personal consumption expenditures price index rose 3.5% year over year and 0.7% month over month. Core PCE, which excludes food and energy, increased 3.2% annually and 0.3% for the month. Officials pointed to higher global energy prices as a key factor behind the gains.

The U.S. economy expanded at an annualized 2.0% rate in the first quarter, the Bureau of Economic Analysis’ advance estimate showed. That pace accelerated from 0.5% in the fourth quarter but was slightly below the 2.2% consensus forecast. Growth reflected stronger consumer spending, higher government outlays, increased exports and business investment.

Consumer confidence ticked up in April for a third straight month. The Conference Board’s index rose 0.6 points to 92.8, the highest reading this year. Survey respondents reported small improvements in labor-market views even as assessments of current and future business conditions weakened.

Markets reacted to the mix of firm growth and rising inflation. The S&P 500 closed the week at a record high, extending a five-week winning streak, while the SPDR S&P 500 ETF Trust rose about 0.9% for the week. The 10-year Treasury yield finished near 4.39% and the 2-year at about 3.88%.

Investors and officials are watching a packed economic calendar for fresh signals on inflation and the labor market. Upcoming releases include trade figures, services sector PMI data, new-home sales, JOLTS job openings, the ADP employment report, weekly jobless claims, the Bureau of Labor Statistics employment report for April and the University of Michigan consumer sentiment index for May.