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"The implications of developments in the Middle East for the U.S. economy are uncertain," the post-meeting statement noted, while terming economic growth "solid," inflation "somewhat elevated" and job gains "low," eschewing language about stabilization from the last statement.
Gov. Stephen Miran voted against the hold, desiring a 25-basis-point cut.
The dot plot continues to suggest one rate cut this year and one more next year.
The projections in the Summary of Economic Projections were lifted for both inflation and growth this year, with inflation expected at 2.7%, up from 2.4%, and GDP growth expected at 2.4%, up from 2.3% in the previous projection in December.
Twelve officials see at least one cut this year while seven see rates holding.
In his press conference, Fed Chair Jerome Powell said monetary policy is "appropriate." He said the changes in inflation projections were not completely oil-related as the core projections also increased.
The Department of Justice is investigating Powell related to the $2.5 billion Fed headquarters renovation. A federal judge recently blocked subpoenas, citing a lack of evidence of wrongdoing.
Powell said he will remain on the board until the investigation is "well and truly over," and will remain chair until a successor is confirmed.
He said he hasn't determined if he will remain a governor when his term as chair ends. He downplayed use of the term stagflation, saying the current situation is not comparable to that when the term was coined in the 1970s.
Most participants don't expect the next move to be a rate hike, he said.
"Bond yields moved slightly lower following the statement, reinforcing our view that income — not price appreciation — will be the primary driver of fixed‑income returns in 2026," said Luis Alvarado, co-head of global fixed income strategy at Wells Fargo Investment Institute.
"With long‑term rates and credit spreads likely to remain range‑bound, yield matters more than timing," Alvarado said.
"From a market perspective, there may be some relief that one cut remains on the table, but oil prices and the duration of the conflict will ultimately drive the narrative from here," said Angelo Kourkafas, senior global strategist of investment strategy at Edward Jones.
"A slightly less hawkish decision than had been anticipated," said Art Hogan, B. Riley Wealth chief market strategist.
"We still see room for two 'normalization' cuts in 2026, although their timing remains dependent on the length of the conflict" in the Middle East, said Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management.
"The Fed is choosing to look through the fog of conflict, for now," said Jamie Cox, managing partner at Harris Financial Group. "A dual mandate Federal Reserve is not going to rock the interest rate boat during a supply shock," he said.
"The Fed affirmed patience, acknowledged geopolitical uncertainty, and resisted a more hawkish pivot even with firmer inflation projections, likely a relief for markets already tightened by recent volatility," said Daniel Siluk, head of global short duration & liquidity and portfolio manager at Janus Henderson Investors.
"The outlook is uncomfortably uncertain and what sounds benign today could look very different in six weeks' time," noted Seema Shah, chief global strategist at Principal Asset Management. "If oil prices remain near current levels, pressure on households will intensify, inflation expectations will edge higher, and the Fed's policy dilemma will sharpen quickly."
While she still expects the Fed to cut rates this year, "risks around the forecast have increased significantly."
The change in GDP projection needs to be taken in context, said LPL Financial Chief Economist Jeffrey Roach. "The weaker growth in Q4 2025 showed the economy is on feeble footing than originally estimated. The likely productivity boost from AI could not come at a better time, if it can be the antidote to slower population growth, shrinking labor force, and persistent services inflation."
