US Fed Keeps Rates Unchanged; Warsh Says 2% Inflation Goal 'Will Not Waver'

The US Federal Reserve kept its benchmark interest rate unchanged on Wednesday, maintaining the federal funds rate in the 3.50%-3.75% range, while signalling that its fight against inflation remains far from over despite a resilient economy and a healthy labour market.

The decision, which was widely expected, was approved by a 9-3 vote of the Federal Open Market Committee (FOMC), with three policymakers supporting a 25-basis-point rate hike. The dissenting members preferred tighter monetary policy as inflation continues to remain above the Fed's 2% target.

The central bank said the US economy continues to expand at a solid pace despite uncertainty stemming partly from the conflict in the Middle East. It added that productivity growth and capital investment remain strong, while the labour market continues to show resilience, with job gains keeping pace with workforce growth and unemployment remaining broadly stable.

However, the Fed said inflation remains elevated due to supply-side shocks, particularly higher energy prices, underscoring the need to keep price pressures under control.

The three dissenting votes came from the presidents of the Cleveland, Dallas and Minneapolis Federal Reserve banks. The same officials had also dissented at former Fed Chair Jerome Powell's final policy meeting in April, when they opposed language that suggested lower interest rates could be on the horizon.

Warsh Reaffirms Inflation Commitment

Speaking after the policy announcement, Federal Reserve Chair Kevin Warsh reiterated that restoring price stability remains the central bank's top priority.

"You've heard this before, but we will deliver price stability," Warsh said.

He stressed that the Fed remains firmly committed to achieving its 2% inflation target.

"We have begun a new chapter, and we understand that the five-plus years of inflation above target cannot be cured in nine weeks, or by a single month of modest price decreases," Warsh said. "This Fed will not waver. Our credibility rests on performing our duties and delivering on our responsibilities."

Responding to a question on whether the decision amounted to a pause in the rate cycle, Warsh rejected that characterisation.

"I wouldn't characterise what we did as anything like a pause. I would characterise what we did as a rigorous review of the economic situation."

US equities reacted cautiously to the policy decision. The Dow Jones Industrial Average fell 744 points, or 1.4%, in afternoon trading, while the S&P 500 declined 0.3%. The Nasdaq Composite traded marginally higher as investors assessed the Fed's policy stance and Warsh's comments on inflation.