RESOLVING THE LEDGER
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The Federal Reserve held interest rates steady on Wednesday as the economy weathers resurgent inflation set off by the Iran war .
The policy decision arrived as oil prices surged and stock prices tumbled in response to a resumption of fighting in the Middle East, underscoring the challenge faced by central bankers tasked with containing price increases.
Fed Chair Kevin Warsh, who took the helm of the central bank in May, has repeatedly vowed to slash inflation to the Fed's desired level of 2%. The annual pace of price increases currently registers at 3.5%.
"The committee remains resolute -- you’ve heard this before -- that we will deliver price stability," Warsh told reporters in Washington, D.C., on Wednesday.
Warsh insisted the central bank would dial back price increases despite years of inflation above the Fed's target level.
"Some households, businesses and market professionals after five years of high inflation have been left with a mistaken impression that’s hard to shake: That the Fed's implicit inflation target was somehow above 2%," Warsh said.
"Let me reiterate: There is no soft inflation target," Warsh added. "There is only a target and it’s 2%."
Nine of the 12 members on the Fed's policymaking board voted in favor of maintaining interest rates at current levels, while three members supported a quarter-point rate increase, the Fed said.
The Iran war triggered a historic oil shortage that drove up fuel costs and catapulted inflation to a three-year high .
A preliminary peace agreement in June offered up some relief, but a burst of on-again, off-again fighting in recent weeks has caused crude prices to rise.
Odds stand in favor of a rate hike in September, the next time central bankers meet, according to the CME Group's FedWatch Tool , a measure of investor sentiment.
The Federal Open Market Committee (FOMC), a 12-member policymaking body at the Fed, issued a statement on Wednesday describing "elevated" inflation attributed in part to "supply shocks that have driven price increases in certain sectors, including energy."
Elevated price increases pose a challenge for central bankers eager to beat back price hikes. In theory, the Fed could raise interest rates in an effort to cool off prices, but the move risks a slowdown of hiring.
So far this year, hiring has proven largely resilient, despite increased costs borne by shoppers and businesses.
Over the first half of this year, the labor market added an average of 92,000 jobs each month, U.S. Bureau of Labor Statistics data showed. That pace marks an improvement from an average of about 7,000 jobs lost per month over the second half of 2025.
Oil prices, a key ingredient in overall price levels, have swung dramatically in recent weeks. Last month, oil prices briefly fell to their lowest level since before the late February outbreak of the Iran war on news that a preliminary agreement to end the war had been reached.
A resumption of large-scale fighting between the U.S. and Iran, however, cast doubt over the staying power of that deal.
Shipping traffic in the Strait of Hormuz declined sharply as the war escalated. The maritime trading route facilitates transport of about one-fifth of global oil supply. In turn, worldwide oil prices climbed above $100 a barrel last week.
Crude costs account for a large share of the price of auto gasoline. The average price of a gallon of gas currently stands at $4.09, according to AAA , which marks a 37% jump since the Iran war began in February.
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