Fed Holds Interest Rates Steady Amid Growing Inflation Concerns

The Federal Reserve held interest rates steady on July 29th at 3.5 to 3.75 per cent, which may intensify questions about how US central bank chief Kevin Warsh will deliver on his commitment to bring inflation back down to the 2 per cent target.

Warsh has said he has 'no tolerance' for inflation that has been running above the central bank's target for more than five years, and up until last month was accelerating as the war in the Middle East pushed up global fuel and food prices, and investment in data centres and other spending tied to artificial intelligence drove up demand.

The Fed noted that economic activity is 'expanding at a solid pace,' saying job gains have kept pace with the workforce, and the unemployment rate has changed little. Speaking in a press conference after the release of the policy decision, Warsh said, 'We've begun a new chapter and we understand that the five-plus years of inflation above-target cannot be cured in nine weeks, or by a single month of modest price decreases. This Fed will not waver.'

The number of officials voting in favour of tighter policy suggests a change in Fed thinking, even though some analysts think the central bank can still hold off on hikes.