The US Federal Reserve has decided to keep interest rates unchanged at 350-375 basis points, as inflationary pressures mount due to rising fuel prices and ongoing tensions between the US and Iran. This marks the second monetary policy decision under new Chairman Kevin Warsh.

In a statement, the central bank noted that inflation remains above its 2% target, partly due to supply shocks driving price increases in sectors such as energy. “The Committee will deliver price stability,” the statement said.

According to CME FedWatch, markets saw a 66.3% probability of rates being held steady, while a 33.7% chance existed for a hike to 375-400 basis points. Three of the 12 committee members — Beth M. Hammack, Neel Kashkari, and Lorie K. Logan — voted for a 25-basis-point increase.

Warsh told reporters that the committee considered recent economic shocks, including pandemic-related supply chain disruptions, military conflicts, energy supply issues, tariff increases, and a surge in AI-related investment. “We are not relying on any one individual piece of data as cover or as an excuse,” he said.

The abandonment of forward guidance by Warsh has increased uncertainty. Barclays economists noted that markets are filling the void with speculation about a potential surprise hike. Citadel Securities had forecast a rate increase, while S&P Global expected rates to remain unchanged.

Consumer inflation moderated in June, with a 0.4% monthly decline, but the annual rate remains elevated at 3.5%. Gasoline prices have risen to an average of $4.09 per gallon, up from $3.86 a month ago. Consumer confidence has fallen for the third consecutive month.

The decision comes amid pressure from the White House. President Trump has long pushed for rate cuts, but has so far refrained from criticizing Warsh, calling him “fantastic” and claiming board members are “very political.”

Source: www.aljazeera.com