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 in the 3.50%-3.75% range for the fourth consecutive meeting. 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.
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.
While the inflation figures were broadly in line with market expectations, the energy-driven rise in prices has prompted some analysts to view a rate hike later this year as increasingly likely.
