The Federal Reserve held its key interest rate steady Wednesday as it weighed concerns of rising inflation against the slowing job market, which are pressuring both sides of the Fed's dual mandate.

One Fed official cast a dissenting votes, hinting at the divisions among policymakers about whether inflation or unemployment poses the greater threat.

It was the second-to-last meeting of the tenure of Fed Chair Jerome Powell, who has resisted President Donald Trump's demands for sharply lower interest rates.

The Federal Reserve voted to keep its key interest rate flat, as rising inflation prevented it from cutting rates and the slowing job market kept a rate hike off the table.

The Federal Open Market Committee voted Wednesday to keep the fed funds rate in a range of 3.5% to 3.75%, the same as it's been since December and as widely expected by financial market participants. One official voted to cut borrowing costs, but was outnumbered 11-1.

The central bank faces a dilemma because its dual mandate to keep inflation low and employment high has had setbacks in both directions. Normally, the Fed raises interest rates when it wants to make loans throughout the economy costlier and discourage spending, which helps push down inflation. When the job market stumbles, they usually do the opposite, cutting rates to promote easier money and boost hiring. The Iran war raises more questions about which direction to go.

"The implications of developments in the Middle East for the U.S. economy are uncertain," the FOMC said in a statement. "The Committee is attentive to the risks to both sides of its dual mandate."

Fed officials anticipate higher inflation in the coming year as a result of the war. In their set of quarterly projections released alongside the rate decision, Fed policymakers forecast a median core PCE inflation rate of 2.7% over the year in 2026, up from 2.5% the last time they made projections in December. However, they did not anticipate changes to the course of monetary policy in response, penciling in one quarter-point rate cut in 2026, the same as they did in December.

The Fed's lack of action was widely anticipated, so the Fed's economic projections and Fed Chair Jerome Powell's press conference will shed more light on how Fed officials are thinking about the impact of the Iran war and its effect on inflation.

Fed officials disagree about which is the more urgent threat at the moment. The Iran war has pushed up energy prices, threatening to stoke inflation in the coming months, while hiring has slowed to a crawl over the past year amid uncertainty about tariff policy, raising the risk of a serious increase in the unemployment rate. Economists say the war's effects on the economy will grow worse the longer it goes on, raising the chances of recession or stagflation.

Fed governor Stephen Miran, an appointee of Donald Trump, voted for rate cuts as he has at every meeting since he took office in September.

Other Fed governors have voiced more concern about the possibility of inflation flaring up again as tariffs and the oil shock from the Iran war push up prices for a wide range of consumer products. Some Fed-watchers have even begun to talk about the chances of the central bank hiking rates at some point this year.

The tensions at the Fed are not just about policy. The central bank is under political pressure from President Donald Trump, who has repeatedly demanded rate cuts. Although the Fed lowered interest rates by a quarter-point at each of its last three meetings last year, Trump has said they should be slashed much farther. Trump's hardball tactics have included insults against Powell and the attempted firing of Fed governor Lisa Cook. His administration has also launched an investigation of Powell over the an ongoing renovation project at the Fed's headquarters, which Powell and his allies say is an attempt at intimidation.

Trump's efforts have faced resistance from courts, which have so far blocked his attempt to fire Cook, and a different federal judge last week blocked the Justice Department probe of Powell, agreeing with Powell's assessment of the investigation's motives.

"There is abundant evidence that the subpoenas’ dominant (if not sole) purpose is to harass and pressure Powell either to yield to the President or to resign and make way for a Fed Chair who will," Judge James Boasberg wrote in an order quashing the grand jury subpoenas of the Federal Reserve Board. "On the other side of the scale, the Government has offered no evidence whatsoever that Powell committed any crime other than displeasing the President."

Trump's pressure campaign has raised concerns among economists and other experts about the independence of the Federal Reserve, which was set up by Congress to operate outside direct control of the White House, with officers serving long terms to ensure no president could appoint enough of them to take control of the bank. Research shows that central banks in countries with less-independent central banks tend to keep interest rates too low, to please the political leadership, thereby allowing inflation to run hotter.

In any case, Trump will soon have Fed leadership that is more inclined to see things his way. Powell's term expires in May, at which point Trump's handpicked Successor, Kevin Warsh, will take over, assuming he is approved by the Senate. That's not guaranteed, however, since at least one powerful Republican senator has vowed to oppose Warsh until the Trump administration drops its probe of Powell.

Wednesday was Powell's second-to-last meeting as chair, and he has not said if he will resign from his term as a rank-and-file Fed governor, or serve until January 2028 when his term expires.

UPDATE: This article has been updated after initial publication to include the latest forecasts from Fed officials for economic growth and interest rates.

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