Fed expected to hold rates steady as inflation concerns persist

The US Federal Reserve is expected to leave its benchmark interest rate unchanged at 3.50 to 3.75 percent when its open market committee concludes a two-day meeting on Wednesday, as policymakers weigh persistent inflation and rising energy prices linked to the war with Iran.

The meeting, due to begin Tuesday, is the second under Fed chair Kevin Warsh. The rate decision is scheduled for 2:00 pm in Washington, followed by a Warsh press conference. Most investors expect no change for a fifth straight meeting, according to CME's FedWatch tool.

Consumer inflation eased to 3.5 percent year on year last month, but remains above the Fed's two-percent target, which the report says has not been reached for more than five years. The report says recent US strikes, retaliatory action by Tehran against Washington's allies, and threats by Yemen's Houthi rebels to blockade the Red Sea oil route have helped push energy prices higher. It says the benchmark oil futures contract has moved above $100 a barrel for the first time since late May.

Fed Governor Chris Waller said last week that the central bank must be ready to tighten monetary policy to prevent a repeat of the 2021-to-2022 inflation episode. Warsh has said he has a resolute commitment to price stability, but has not given details on when or how he thinks action would be appropriate.

Warsh has also said he wants to reduce or remove forward guidance on Fed decisions, arguing that it can lock policymakers into positions they may need to change. Some analysts say less guidance could increase uncertainty for markets.

The Fed's mandate is to keep inflation near its long-term target while also supporting maximum employment. The report says the US labor market has largely stabilized, leaving policymakers focused mainly on prices. Analysts cited in the report do not expect a rate rise at this meeting, but expect possible dissent and, in some forecasts, rate increases later this year.