Fed Holds Rates Steady, Raises Inflation Expectations in New Meeting

The US Federal Reserve held interest rates steady at 3.50 to 3.75 per cent during its Wednesday meeting, marking the first unanimous decision in a year under Kevin Warsh’s leadership.

Economic activity was expanding solidly despite heightened uncertainty due partly to Middle East conflict, according to policymakers. Inflation remained elevated relative to the Fed’s 2-per cent goal, driven by supply shocks and energy price increases linked to President Donald Trump’s Iran war.

Year-end PCE inflation expectations were raised to 3.6 percent from 2.7 percent in March as the world’s largest economy grapples with record-high prices. The Summary of Economic Projections indicated a projected rate hike by year-end 2026, based on input from 18 of 19 policymakers.

US inflation reached 3.8 percent in April, according to the Fed’s preferred gauge, Personal Consumption Expenditures (PCE) prices index. With labor market strengthening, pressure mounts for Fed policymakers to tackle inflation within their mandate.