Fed leaves rates unchanged, signals caution on inflation outlook

The US Federal Reserve on Wednesday kept interest rates unchanged, signalling caution as inflation remains elevated even as the economy continues to expand at a solid pace.

The Federal Open Market Committee (FOMC) voted to maintain the target range for the federal funds rate at 3.5% to 3.75%, citing steady economic activity, low job gains and signs of stabilisation in the unemployment rate. Inflation, however, continues to run above the Fed’s long-term target of 2%.

“Uncertainty about the economic outlook remains elevated,” the Fed said in its policy statement, adding that it remains attentive to risks on both sides of its dual mandate of maximum employment and price stability.

The decision was not unanimous. Fed Governors Stephen Miran and Christopher Waller dissented, preferring a 25-basis-point rate cut at this meeting.

The central bank reiterated that future policy moves will depend on incoming data, including labour market conditions, inflation trends, inflation expectations, and financial and global developments. It said it is prepared to adjust the stance of monetary policy if risks emerge that could derail its objectives.

Alongside the rate decision, the Fed said it will keep the interest rate on reserve balances at 3.65%, continue overnight repo operations at 3.75%, and maintain reverse repo operations at 3.5%. It will also keep purchasing short-term Treasury securities to ensure ample liquidity while rolling over maturing Treasury holdings.

Fed Chair Jerome Powell and Vice Chair John Williams voted in favour of holding rates, along with eight other committee members.

The Fed said it remains “strongly committed” to bringing inflation back to its 2% goal while supporting maximum employment, underscoring that policy decisions will remain data-dependent in the months ahead.