Fed Holds Interest Rates Steady Amid Concerns Over Iran-Driven Inflation

The US Federal Reserve's key rate-setting committee began its two-day meeting on Tuesday, with policymakers expected to hold interest rates steady. The Fed's Open Market Committee (FOMC) will announce its decision at 2:00 pm local time (1800 GMT) on Wednesday, followed by a press conference by Fed Chair Kevin Warsh.

The committee is facing growing concern over inflation fueled by the ongoing tensions with Iran and seesawing oil prices. Despite this, consumer inflation eased to 3.5 percent year-on-year last month, but is expected to rise again.

Fed policymakers have made it clear that their focus is on inflation, which has failed to reach its long-term two-percent target for more than five years. With the US unemployment rate relatively stable at around 4.2 percent, the Fed's main tool for achieving its policy goals is setting the economy's key interest rate.

The Fed has a dual mandate to keep inflation to its long-term target while ensuring maximum employment in the world's largest economy. While some policymakers have indicated that they see the need for at least one rate hike before the end of the year, markets have been pricing in this possibility with investors giving a more than 30 percent probability.