US Fed keeps rates unchanged for fourth straight meeting at 3.5%–3.75%: 5 key takeaways

The US Federal Reserve, led by new Chairman Kevin Warsh, kept interest rates unchanged as policymakers chose to await greater clarity on inflation and economic growth before adjusting the monetary policy trajectory.

The US Federal Reserve announced its latest monetary policy decision following a two-day Federal Open Market Committee (FOMC) meeting, keeping its benchmark interest rate unchanged for the fourth consecutive meeting.

Federal Open Market Committee votes unanimously to leave its benchmark interest rate in a target range of 3.5%-3.75%.

The Fed had previously lowered short-term interest rates in three consecutive meetings before pausing its easing cycle in January.

The decision was widely expected as policymakers continue to grapple with inflationary pressures stemming from higher energy prices driven by the Middle East conflict.

However, expectations for a potential rate hike later this year have increased as the labour market remains resilient, the inflation outlook remains uncertain, and oil prices continue to trade well above year-ago levels amid the ongoing conflict involving Iran.

Reflecting those expectations, nine of the US central bank's 19 policymakers now believe that an increase in the Fed's policy rate may be needed this year, according to updated projections released on Wednesday.

The projections showed that central bankers have become more pessimistic about inflation since March, reflecting the sharp rise in inflation since the start of the war.

The US annual inflation rate accelerated to 4.2% in May from 3.8% in April, marking its highest level since April 2023. Core CPI, which excludes volatile food and energy prices, rose 2.9% year-on-year, compared with 2.8% in April.

Meanwhile, the Federal Reserve removed forward-guidance language from its policy statement, signalling a shift toward a more data-dependent approach under Chairman Kevin Warsh.

Fed holds interest rates steady

The US Federal Reserve maintained the federal funds rate in the 3.50%-3.75% range, leaving it unchanged for the fourth consecutive meeting as policymakers sought to balance economic growth with inflation control.

Policymakers said economic activity was "expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East".

At the start of the year, policymakers signalled growing confidence that the unemployment rate was stabilising.

Soon after, several officials indicated they were prepared to keep interest rates elevated for an extended period to help bring inflation back toward the Fed's target, which was impacted by the Iran war.

Fed raises inflation forecast

Fed officials also released their latest Summary of Economic Projections (SEP) on Wednesday, raising their year-end PCE inflation forecast to 3.6% as the world's largest economy grapples with price pressures that have climbed to a three-year high. In March, policymakers had projected year-end PCE inflation at 2.7%.

Core PCE inflation, which excludes volatile food and energy prices, is now expected to reach 3.3%, up from the previous forecast of 2.7%.

US households have been dealing with persistently elevated prices, with inflation moving further away from the Fed's long-term 2% target, driven largely by higher energy costs linked to the conflict involving Iran.

Labour market remains resilient

The unemployment rate is now projected to stand at 4.3% by the end of the year, matching the actual reading recorded in May and lower than the 4.4% forecast made in March.

The revised outlook suggests growing confidence among policymakers that the labour market remains resilient and does not currently require support through lower interest rates, as some officials had feared earlier this year.

Policymakers signal potential rate hikes

Of the 18 Federal Reserve officials who submitted interest-rate projections, nine now expect rates to rise this year, reflecting concerns that inflation could remain elevated amid higher oil prices following the Iran conflict.

Six of those nine policymakers—roughly one-third of the committee—believe that more than one quarter-percentage-point rate hike may be required this year, according to the projections.

Meanwhile, eight officials expect interest rates to remain unchanged, while only one policymaker favours a single rate cut. One official did not submit a rate-path projection, Reuters reported.

Fed Chair Warsh has said he wants to reduce the amount the central bank communicates about its decisions and was widely expected to withhold his projections.

Trims GDP growth outlook for 2026

US GDP growth is projected at 2.2% in 2026, slightly below the 2.4% forecast issued in March.

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