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The Federal Reserve said on Wednesday that it is leaving its benchmark interest rate unchanged, a sign policymakers expect inflation to ebb despite higher energy costs due to the war in Iran.
This marks the fifth consecutive time the central bank has held rates steady this year. The last time Fed officials voted to change interest rates was in December 2025, when it reduced its key rate by 0.25 percentage points.
The move to hold the federal funds rate — what banks charge each other for overnight loans — was widely expected by economists and investors after June inflation data showed consumer prices easing.
“When you have a supply shock like the Iran War, the textbook says don’t raise rates unless inflation expectations are rising because the inflation will not become entrenched and it’ll fade once the shock is over,” Mark Zandi, chief economist at Moody’s Analytics, told CBS News prior to the Fed’s latest rate decision. “I think that argument still wins the day.”
Fed Chairman Kevin Warsh is scheduled to hold a press conference at 2:30 p.m. EDT to discuss the decision.
Are future rate hikes still a possibility?
The Fed could yet act to raise borrowing costs later this year if inflation, which has remained well above the central bank’s 2% annual target, resumes climbing.
Energy prices drifted higher this month, driven by renewed tensions in the Middle East. Last week, the national average for a gallon of gas topped $4, and global oil temporarily breached $100 a barrel.
“The probability of a rate hike is rising, in our view, especially if the conflict persists and oil prices continue to trend higher,” Edward Jones senior analyst Brian Therien said in an email prior to the Fed meeting. “That said, the inflation outlook could become more balanced if the U.S.-Iran pause leads to a longer ceasefire and oil prices remain lower.”
The artificial intelligence boom is also driving up costs for memory chips, consumer electronics and electricity, according to EY-Parthenon Chief Economist Gregory Daco.
“The key question is what happens in the Middle East,” he told CBS News. “That’s going to be the key driver of headline inflation.”
Daco thinks the Fed would likely hike rates at its September meeting if inflation were to reaccelerate.
Warsh has voiced his commitment to restoring price stability but has been more tight-lipped than his predecessors about his thinking on rate decisions and the Fed’s potential next steps.
Other policymakers have been less reticent, with some Fed officials signaling an openness to raising rates.
President Trump has urged the Fed to cut rates and repeatedly pressured former Fed Chairman Jerome Powell to lower borrowing costs to spur economic growth.
Mr. Trump’s latest call to lower rates came on Tuesday, when he told reporters aboard Air Force One, “We should have the lowest interest rate in the world.”
