Fed’s Preferred Inflation Gauge Eased During Pause in Iran War

The longer the war drags on, the more upward pressure that will put on inflation, which has overshot the Fed’s 2 percent target for more than five years.

On Wednesday, the central bank voted to leave interest rates unchanged at a range of 3.5 to 3.75 percent, a level that has been in place since January. But three officials dissented in favor of a quarter-point increase. Those voters were Beth M. Hammack of the Federal Reserve Bank of Cleveland, Neel Kashkari of the Minneapolis Fed and Lorie K. Logan of the Dallas Fed.

Wednesday’s inaction put Kevin M. Warsh, the new chairman, on the defensive in light of his pledge to get inflation down. At a news conference after the policy announcement, he reiterated that the Fed had not wavered in its commitment to achieving the 2 percent target. He also said that cooler June inflation data did not factor much into the Fed’s decision to stand pat.

But his hesitancy to fully embrace the notion that higher rates might be necessary to quell price pressures fomented fears across Wall Street that Mr. Warsh’s tough talk would not be backed up by action. Long-term U.S. government borrowing costs jumped higher on Wednesday as investors pushed back the timing of eventual rate increases. Expectations about inflation in the coming years also rose.

The Fed meets again in mid-September. By then, officials will have two more months of data in hand. If inflation does not show further signs of cooling, most officials have already suggested that they will need to tighten the Fed’s policy screws. In recent weeks, several policymakers have said they need to see this progress “soon.”

Article source: https://www.nytimes.com/2026/07/30/business/federal-reserve-inflation-iran-war.html