Fed Expected to Hold Rates Steady Amid Inflation Worries

The US Federal Reserve is expected to hold interest rates steady on Wednesday, but analysts say some policymakers will dissent in favor of a rate hike. The Fed's open market committee (FOMC) will announce its decision at 2:00 pm (1800 GMT), followed by a press conference by Chairman Kevin Warsh.

Most investors expect the Fed to hold rates at 3.50-3.75 percent for the fifth straight meeting, according to CME's FedWatch monitoring tool. However, bets on a rate hike have been rising due to surging inflation fueled by President Donald Trump's war on Iran.

Consumer inflation eased to 3.5 percent year-on-year last month, but is expected to rise again on the back of seesawing oil prices from Trump's war on Iran. The uncertainty around the outcome of the meeting is unusual, and is fueled by Warsh's refusal to publicly share his views on the economic outlook.

'Patience running thin' among policymakers, according to Gregory Daco, chief economist at EY-Parthenon. 'Other policymakers' patience is running thin when it comes to inflation, and most, if not all, stand ready to act if inflation does not soon move back towards two percent.'

Diane Swonk, chief economist at KPMG, expects dissents among the Fed's hawks, who consider it appropriate to raise interest rates to combat high prices. She argues that the hawkish core of the Fed has hardened and broadened, and that two rate hikes are penciled in for later this year.