The Federal Open Market Committee (FOMC) released its latest statement on monetary policy.  The Fed is keeping its target of the federal funds rate the same, which is in a range of 3.5% to 3.75%.

There were 4 dissents to the FOMC statement, which is something of a new phenomenon with the Fed.  The Fed has typically voted mostly in unison, with maybe the occasional dissenting vote.

However, there was only one vote against keeping rates steady, instead preferring to lower the target rate by 0.25%.  The other 3 dissenting votes agreed with keeping rates the same but “did not support inclusion of an easing bias in the statement at this time.”

In other words, these three members don’t want to signal a looser monetary policy in the future.

Energy Prices and Inflation

The statement acknowledged that, “Inflation is elevated, in part reflecting the recent increase in global energy prices.”

Of course, real inflation is an increase in the money supply.  Higher energy prices make life more expensive for the average American (and non-American), but it isn’t a general rise in prices due to the increase in the money supply.  Generally speaking, if you have to spend more to fill up your car, then you will spend less somewhere else.  This means that, all else being equal, other prices should come down.

Therefore, the higher energy prices due to the war in Iran is not necessarily a good reason to keep rates where they are.  There are other good reasons to keep rates where they are, especially since we haven’t seen 2% or lower consumer price inflation for many years now (the supposed target of the Fed).

The higher energy prices give the Fed an excuse to not be too loose with its monetary policy, just as the tariffs did before.

Perhaps there is some irony in the fact that Trump continually calls for lower rates when he is in office, yet his actions are giving the Fed excuses to not lower rates.

The Fed Balance Sheet

While the Fed magician is waving one hand around and pulling a rabbit out of a hat, the other hand is doing something else.

The financial media is generally taking a position that the Fed is being tight with its policy, or at least not any looser.

However, while the Fed says it is not lowering its target rate, it is slowly starting to inflate its balance sheet again.

Since December 1, 2025, the Fed has added over $170 billion to its balance sheet.

Sure, this is not a huge amount compared to what we saw in 2008 or 2020, but the trend means something.

The Fed is quietly inflating again.  They know there is a risk out there after having an inverted yield curve in 2023 and 2024 and previously draining a couple of trillions of dollars off the balance sheet.

It is amazing that things have held up for this long, especially as the government continues its reckless spending and debt accumulation.  Perhaps that is what is keeping the bubble going for now.

We’ll see if this economy can defy economic law and keep chugging along.  It doesn’t mean that the average American is doing well.  But somehow, stocks keep going higher, and unemployment remains relatively low.

Will the Fed be able to continue to walk this tightrope between consumer price inflation and a weakening economy?  Stock investors seem to think so.