Key facts
- The Federal Reserve unanimously decided to keep its benchmark interest rate unchanged at 3.5-3.75 percent.
- This marks the fourth consecutive pause in rate decisions.
- New median economic projections suggest the federal funds rate will be 3.8 percent at the end of the year, an increase from the March projection of 3.4 percent.
- Nine of the 19 FOMC participants anticipate higher borrowing costs by year-end.
- Consumer Price Index (CPI) rose 4.2 percent in May, the largest annual increase since 2023, largely due to higher energy prices.
- Personal Consumption Expenditures (PCE) inflation is projected to reach 3.6 percent at year-end, up from 2.7 percent in March.
The U.S. Federal Reserve maintained its benchmark interest rate at 3.5-3.75 percent during its latest Federal Open Market Committee (FOMC) meeting, the first under new Chair Kevin Warsh. This decision marks the fourth consecutive pause in rate hikes.
Policymakers' updated median economic projections indicate a shift towards higher rates by year-end, with the federal funds rate expected to reach 3.8 percent, an increase from the 3.4 percent projected in March. Nine of the nineteen FOMC participants anticipate borrowing costs to rise before the end of the year.
The Fed's decision comes amid persistent inflation concerns, highlighted by the U.S. Labor Department's report of a 4.2 percent annual increase in the consumer price index for May, the largest rise since 2023, largely attributed to higher energy prices stemming from the U.S.-Israeli war against Iran. Personal Consumption Expenditures (PCE) inflation is now projected to hit 3.6 percent by year-end, up from 2.7 percent in March.
New Chair Kevin Warsh emphasized the FOMC's commitment to price stability, stating that inflation has been running well above the Fed's 2 percent goal for over five years. He expressed confidence that recent trends do not have to dictate the future.
U.S. gross domestic product growth is now forecast at 2.2 percent for the year, slightly down from the previous 2.4 percent projection, while next year's forecast remains unchanged at 2.3 percent. The current rate decision leaves a potential gap of up to 1.25 percentage points between U.S. and South Korean key rates.