WASHINGTON (AP) 鈥� The Federal Reserve left its key interest rate unchanged Wednesday, although three officials dissented in favor of higher rates as the central bank wrestles with how to deal with persistently high inflation.
The Fed鈥檚 rate-setting committee reached its decision after two days of deliberations, marking the fifth straight meeting at which the benchmark rate was kept at around 3.6%.
Some economists and Wall Street analysts had predicted the Fed would hike its rate by a quarter point. But while the decision to stand pat could be seen as good news for consumers, they might not feel much relief with the average credit card rate still near 20% and mortgage rates the highest since last August.
Inflation has been stuck above the central bank鈥檚 2% target for more than five years. The and has driven energy prices higher, intensifying inflationary pressure and creating a quandary for Fed policymakers. In addition, the on artificial intelligence are both driving manufacturing and have resulted in increased prices for items such as computer chips and electricity. President Donald Trump鈥檚 tariffs on foreign goods are also adding to inflation pressures.
The three regional Fed bank presidents who dissented 鈥� Beth Hammack of the Cleveland Fed; Neel Kashkari from Minneapolis; and Lorie Logan from Dallas 鈥� had previously called for or signaled that they would be open to raising rates to combat high prices.
鈥淭he dissents send a clear message: The Fed is not yet convinced the inflation battle has been won,鈥欌�� said Seema Shah, chief global strategist at Principal Asset Management.
At a press conference following the rate decision, Fed Chair Kevin Warsh reiterated the Fed’s commitment to combating inflation. At the same time, Warsh said, 鈥淲e have no magic wand. This isn鈥檛 something we鈥檙e going to be able to carry out in days or weeks.鈥�
Warsh said he welcomed vigorous debate at the committee meeting. 鈥淚 asked for a good family fight and I got one,” he told reporters at a press conference.
Warsh has sought to make the central bank more tight-lipped about what it’s doing. When Fed officials make their views public, he reasons, they are less likely to adjust to new information. Even without much guidance from the Fed, he said approvingly that financial markets had made their own judgments about interest rates, pushing up yields in the past few weeks. The yield on the 10-year Treasury, for instance, has risen from around 4.50% in mid-June to 4.64% just ahead of the Fed’s rate decision.
The market is 鈥渓earning to play the ball and not the referee,鈥� Warsh said.
But some economists were frustrated by the Fed chair’s ambiguous answers to questions. Thomas Ryan and Stephen Brown of Capital Economics, for instance, complained in a commentary that Warsh’s 鈥渧ague” responses 鈥漨ake forecasting the Fed鈥檚 next move even trickier than it already was.”
Coming into Wednesday, traders on Wall Street saw a 33% chance the Fed would issue a rate hike, although most expected policymakers to hold off, reluctant to risk disrupting financial markets. But most expect a rate hike in September, according to data from CME Group.
Trump, who had persistently pressured the Fed to cut rates, voiced support for Warsh. 鈥淗e鈥檚 fantastic. He鈥檚 a brilliant guy. Smart. I know he鈥檇 love to see lower interest rates, but he鈥檚 got a board and it鈥檚 a political board and they want to keep rates up,鈥� Trump told reporters.
Fed officials likely want to see more economic data before changing the benchmark rate. On Thursday, the Commerce Department delivers the first look at April-June economic growth and it will also publish the Fed鈥檚 preferred inflation measure 鈥� the personal consumption expenditures (PCE) price index 鈥� for June.
Adding uncertainty to the Fed鈥檚 decision-making process is the rising . The price of oil briefly a barrel last week on intensifying fighting.
After the U.S. and Israel attacks on Feb. 28, Iran shut down the Strait of Hormuz 鈥� through which a fifth of the world鈥檚 oil and natural gas pass. That caused the greatest disruption in oil supplies in history and sent energy prices surging. They鈥檝e since bobbed up and down depending on the ever-changing state of the conflict and negotiations to de-escalate it, but the average cost for a barrel is $10 to $15 more today than it was at this point last year.
Inflation has exceeded the Fed鈥檚 2% target since early 2021 when the U.S. economy overheated as it roared back from COVID-19 lockdowns. Inflation peaked at just over 9% in mid-2022 and began to drop in the face of 11 rate hikes by the Fed in 2022 and 2023. But progress has more or less stalled.
So-called core inflation 鈥� which excludes volatile food and energy prices 鈥� , partly because apartment rents aren鈥檛 rising as fast as they had been. And a temporary drop in gasoline prices last month also helped contain overall inflation.
But several Fed policymakers have been arguing that the Fed will have to raise rates to return inflation to the 2% target.
鈥淪ternly staring at inflation until it melts before our withering gaze is not an option,鈥欌�� Christopher Waller, an influential member of the Fed鈥檚 governing board, said in a speech this month. Still, Waller voted to leave rates alone this week.
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AP Writers Josh Boak and Damian Troise contributed to this story.
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Earlier versions of this story erroneously reported the name of an economist at BNP Paribas as Joseph Egelhof. His first name is James.
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