The Federal Reserve has kept interest rates unchanged at 3.50 to 3.75 per cent, marking the fourth consecutive meeting without a change, while signalling a potential rate hike by the end of 2026 as inflation pressures persist.
The decision came at the first meeting led by new Fed Chair Kevin Warsh, and was unanimously approved by policymakers for the first time in a year.
Officials said US economic activity continued to expand at a solid pace, despite what they described as “elevated uncertainty” partly linked to geopolitical tensions in the Middle East.
Inflation, however, remains well above target, with policymakers warning that price pressures are still elevated relative to the Fed’s 2 per cent goal, driven in part by energy-related supply shocks.
In its latest Summary of Economic Projections, the Fed raised its year-end PCE inflation forecast to 3.6 per cent, up from 2.7 per cent in March, reflecting persistent price pressures across the US economy.
The central bank noted that inflation has been further pushed by rising energy costs linked to geopolitical tensions, including the ongoing conflict involving Iran under the administration of US President Donald Trump.
US inflation stood at 3.8 per cent in April based on the Personal Consumption Expenditures (PCE) index, the Fed’s preferred measure.
Market expectations have shifted sharply in recent weeks. While investors previously priced in at least one rate cut before the end of the year, expectations have now moved toward a possible rate hike at the Fed’s December meeting.
The Fed’s updated projections suggest one additional interest rate increase could occur by the end of 2026, signalling a more cautious stance on inflation control despite earlier hopes of monetary easing.
Policymakers also pointed to a firming US labour market, which is adding pressure on the central bank to prioritise inflation control over rate cuts.
The Fed’s statement was notably shorter than usual and removed previous forward guidance on future rate direction, reflecting increased uncertainty in the economic outlook.
Analysts say the combination of higher inflation forecasts, steady rates, and reduced policy signalling indicates a more data-dependent and cautious approach going forward.
With inflation still above target and geopolitical risks affecting energy prices, the Federal Reserve appears set to maintain a tight monetary stance, even as markets adjust to the possibility of further tightening into 2026.
