Key facts
- The Federal Reserve held its target interest rate unchanged at 3.5%-3.75% for the fifth consecutive meeting.
- Policymakers cited elevated uncertainty, partly due to the Mideast Gulf war.
- US consumer price index (CPI) eased to 3.5% annually in June, with a 0.4% monthly decrease.
- Energy prices dropped significantly in June following an interim peace deal in the Mideast Gulf.
- The Fed projects headline PCE inflation to end 2026 at 3.6% and GDP growth at 2.2%.
US Federal Reserve policymakers held their target interest rate unchanged Wednesday, reiterating language that uncertainty "remains elevated", partly due to the Mideast Gulf war. The Fed's Federal Open Market Committee (FOMC) kept the federal funds rate at 3.5-3.75pc, holding it unchanged for a fifth meeting in 2026, following quarter-point cuts in September, October and December last year.
"Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East," the FOMC said, repeating language from its statement in June. "Inflation remains elevated relative to the Committee's 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The Committee will deliver price stability," it reiterated from the prior statement.
The CME's FedWatch tool had forecast about a 34pc probability the Fed would increase rates Wednesday, in its second meeting since former Fed governor Kevin Warsh was inaugurated as Fed chair on 22 May with a pledge to focus on fighting inflation and boosting the Fed's credibility. Of the 12 voting FOMC members, nine voted for the decision, while three voted to raise the rate.
The US consumer price index (CPI) eased to an annual 3.5pc in June from 4.2pc the prior month, the first decline in five months and lower than analysts' estimates for 3.8pc growth, the Labor Department reported on 14 July. On a monthly basis, it fell by 0.4pc in June from May, the first monthly decline since May 2020, largely due to a 5.7pc drop in energy prices as crude fell after an interim peace deal in the Mideast Gulf was reached on 17 June. The Fed, in its economic projections released in June, projected headline PCE inflation would end 2026 at 3.6pc, dropping to 2.3pc by the end of 2027. It was projected to end the year at 2.7pc in its March projection. The Fed has a dual mandate to achieve maximum employment and stable prices. Members, in the latest projections, saw GDP ending the year at an annual 2.2pc rate of growth, down from 2.4pc in March.
The Fed decision comes amid a recent flareup in hostilities in the Mideast Gulf war after a ceasefire reached in mid-June broke down in early July. Before the latest rebound in crude futures, oil prices had dropped following a halt in US and Iranian attacks against each other since 24 July.