The US Federal Reserve keeps rates steady under the new chair Warsh | Stories of Ascension

Rising energy prices due to the US-Israel conflict with Iran have pushed US inflation to a three-year high.

The United States Federal Reserve will keep interest rates steady at 3.5 to 3.75 percent amid concerns over the economic growth in the US economy.

The central bank announced the decision, which was agreed, on Wednesday following its first two-day meeting chaired by Kevin Warsh, who took over from Jerome Powell as governor last month.

“Financial activity is expanding despite significant uncertainty surrounding tensions in the Middle East,” the Fed said in a news release.

“Inflation remains high compared to the Committee’s target of 2 percent, partly reflecting material shocks that have led to higher prices in other sectors, including energy,” it added.

The verdict was in line with expectations. CME FedWatch, which tracks the likelihood of monetary policy decisions, said there was a 99 percent chance that rates would remain unchanged.

Inflation creates problems

Inflation hit 4.2 percent last week, showing a three-year high, which is based on the consumer price report from the US Department of Labor – the main indicator that the central bank uses to track inflation – has been shown.

This was mainly driven by rising electricity prices, which jumped 23.5 percent in May. However, news of an upcoming peace deal that could end the war between the US and Iran and reopen the Strait of Hormuz has lowered oil prices in recent days, with prices falling to a three-month low earlier this week.

However, even if the Strait were to open soon, blockades, power outages, and oil shortages meant it could be. months before the electricity prices came to consumers before the war.

Future months

In early December, US President Donald Trump said he would nominate someone to lead the central bank if he agreed to cut interest rates, but rising inflation due to rising energy prices amid tensions between the US and Iran has changed the equation.

Trump has changed his mind to oppose any increase.

On Sunday’s NBC political program Meet The Press, Trump praised Warsh, but insisted there was “no need to raise prices.”

“Even if Mr. Warsh feels that he is under the control of Mr. Trump, a strong statement could also raise concerns about the independence of the Fed and pose the risk of raising long-term yields (which could raise the cost of borrowing). Therefore, Mr. Warsh who likes Trump may still try to draw a line between political soundness and acceptance of economic growth in North America, Stephen Brown, head of Econom America and Capital Econom America. said in a letter.

Although rates were held at the meeting, CME FedWatch predicts that this will change in the coming months. By September, analysts have predicted a 30 percent increase in prices; by December, there is a better than 50 percent chance that current conditions in the labor and financial markets will match current forecasts.

Capital Economics predicts one rate hike in December 2027 and another in early 2027. Goldman Sachs predicts that the central bank may not cut rates until mid to late 2027.