US central bank holds rates steady amid inflation concerns

The U.S. Federal Reserve maintained its key interest rate at 3.50-3.75% on Wednesday, a decision that met financial market expectations. The central bank has been closely monitoring economic conditions.

The Federal Open Market Committee (FOMC) unanimously decided to hold rates steady. In its statement, the committee noted that economic activity is expanding at a solid pace, despite increased uncertainty stemming partly from the conflict in the Middle East. Strong productivity growth and capital investments were also highlighted.

This marks the first committee statement under new Chair Kevin Warsh, and it is notably more concise than previous statements. "Inflation remains elevated relative to the Committee's two percent longer-run goal, partly reflecting supply disruptions that have led to higher prices for certain goods, including energy. The Committee seeks to achieve maximum employment and price stability," the statement read.

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Economic activity is expanding at a solid pace despite increased uncertainty, which is partly due to the Middle East conflict. Productivity growth and capital investments are strong.

Based on committee members' projections, it is likely that the Fed will keep its benchmark rate unchanged throughout the year. This stance contrasts with President Donald Trump's repeated calls for the central bank to lower interest rates. Inflation, measured by consumer prices, has already significantly surpassed the Fed's 2% target. In May, prices rose 4.2% year-over-year, primarily due to a sharp increase in energy costs. However, an preliminary agreement to end the conflict in Iran is expected to curb energy price hikes, potentially slowing inflation.

The Fed's newly released economic forecast predicts U.S. economic growth of 2.2% this year, 2.3% next year, and 2.2% in 2028. Inflation is projected to average 3.6% this year, but is expected to decelerate to 2.3% next year and 2.0% by 2028.

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Inflation remains elevated relative to the Committee's two percent longer-run goal, partly reflecting supply disruptions that have led to higher prices for certain goods, including energy. The Committee seeks to achieve maximum employment and price stability.