US Federal Reserve holds rates steady under new chair Kevin Warsh

The US Federal Reserve has kept interest rates unchanged at 3.5% to 3.75% after its first policy meeting under new chair Kevin Warsh. The unanimous decision comes as officials weigh persistent inflation pressures against signs that economic activity remains solid. The central bank said elevated uncertainty is linked in part to the conflict in the Middle East.

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The rate-setting committee said inflation remains above its 2% goal, with price increases in some sectors driven by supply shocks, including energy. One supporting account said inflation had reached 4.2%, a three-year high, while energy prices rose sharply in May. The committee also said job gains have kept pace with the workforce and unemployment has changed little.

Warsh, who took over from Jerome Powell last month, said the committee was united and would deliver price stability. The decision was widely expected by markets, with one measure of trader expectations putting the chance of unchanged rates at 99%. The Fed's statement was notably shorter than its previous one, reflecting a change in communication style under Warsh.

It also removed language that had suggested the central bank was leaning towards lower rates in the future. That shift matters because the Fed's wording is closely watched by investors, lenders and businesses for clues about the path of borrowing costs. The meeting took place against the backdrop of the US-Israel war with Iran, which has pushed up energy prices and added to inflationary pressure in the United States.

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The central bank said the uncertainty was affecting the outlook for the economy, even as productivity growth and capital investment remained strong. In practical terms, higher borrowing costs can affect mortgages, business investment and consumer spending, while higher energy prices can feed through into transport and household bills. The Fed's decision therefore has significance beyond financial markets, because it shapes the cost of credit across the economy.

The latest move also highlights the political sensitivity surrounding the central bank. US President Donald Trump had previously pressed Powell to cut rates and had signalled he expected Warsh to support lower borrowing costs. But the inflation backdrop has complicated that position, with officials now facing pressure to balance price stability against growth concerns.

The committee's unanimous vote suggests there was little appetite for an immediate change despite the political debate. The supporting rows indicate that the Fed's internal projections, often referred to as the dot plot, were also closely watched. Nine of the 18 participating central bankers expected an interest rate hike later this year, while eight expected rates to stay the same and one expected a cut.

Warsh did not provide his own projection, but said he encouraged colleagues to continue with the process. That detail suggests the debate inside the central bank is not only about the current rate, but also about how long restrictive policy may need to remain in place. The broader context is that the Fed has been trying to bring inflation back to target without causing a sharp slowdown in the labour market.

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The rows say economic activity is still expanding at a solid pace, which gives policymakers room to hold steady for now. At the same time, the conflict-driven energy shock has made the inflation outlook less predictable, especially if supply disruptions continue or if oil prices reverse again. The central bank's next steps will depend on whether those pressures ease or persist.

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