US Federal Reserve holds interest rates steady amid Iran war uncertainty

WASHINGTON: The United States Federal Reserve on Wednesday opted to keep interest rates unchanged, defying pressure from President Donald Trump, as the world's largest economy grapples with persistent inflation, tepid labour demand, and an economic outlook clouded by the ongoing conflict in Iran.

The decision, taken by an 11-1 vote, maintained the benchmark interest rate in a range of 3.50 per cent to 3.75 per cent. Fed officials also signalled that one rate cut is expected by the end of the year.

"The implications of developments in the Middle East for the US economy are uncertain," the Fed said in a statement.

Rate cuts paused after three consecutive reductions

The central bank had cut rates three consecutive times late last year before pausing at its January meeting and holding them steady. The Federal Reserve operates under a dual mandate: keeping inflation close to a long-term target of 2 per cent while ensuring maximum employment in the economy.

The war in the Middle East has driven a spike in global oil prices, raising concerns about the potential for widespread inflation and dampened economic growth. Analysts noted that given these dynamics, policymakers were unlikely to make any immediate moves on interest rates.

Affordability remains a key concern

Affordability has remained a central political issue in the United States, with rising costs continuing to weigh on households and shaping the broader economic debate. The Fed's cautious stance reflects the delicate balance it must strike between combating inflation and supporting employment amid heightened geopolitical risks.

The decision to hold rates steady was widely anticipated by markets, as the central bank navigates a complex global environment. The conflict in Iran and its broader implications for energy markets and supply chains have added a layer of uncertainty to an already challenging economic landscape for US policymakers.

With one rate cut still projected before year-end, market participants and economists will be closely watching upcoming economic data and developments in the Middle East for signals on the Fed's next move.