'No magic wand' to tackle high prices, Fed boss says as US interest rates held

The boss of the Federal Reserve said there is no "magic wand" to ease the cost of living for Americans as it held interest rates steady for the fifth time in a row.

Rates were left unchanged, as broadly expected, between 3.5% and 3.75% on Wednesday, but concerns inflation could increase in the coming months due to the ongoing conflict in the Middle East remain.

Fed chairman Kevin Warsh repeated his pledge to bring down inflation but admitted it would take time. Prices in the US have been rising at a rate above the Fed's 2% target for more than five years.

Policymakers voted 9-3 in favour of keeping interest rates on hold, with the three voting against pushing for a small hike.

The decision comes amid growing uncertainty over the impact of the ongoing conflict in the Middle East on global oil prices and prices for consumers. On Wednesday, Brent crude, the global benchmark for oil prices rose by more than 6% to above $89 a barrel.

Despite inflation falling to 3.5% in the year to June, the rate prices are rising at remains above the Fed's 2% target. Last month's lower rate of inflation does not mean prices are falling, but that they are rising at a slower rate.

Interest rate hikes are a tool used by central banks aiming to slow the pace prices are rising in the shops. By pushing up the cost of borrowing for things such as mortgages, loans and credit cards, central bankers hope consumers will spend less and the rate of price increases will slow.

Higher interest rates can also lead to better returns for savers.

Given the volatile situation in the Middle East, there was some speculation that the Fed may opt to raise rates in advance of future spikes in energy and food costs.

Asked why the Fed did not increase rates, newly-appointed chair Warsh said that, while there was "impatience" being felt by households and businesses over high prices, his board had only been in position for eight-and-a-half weeks.

"We are on the job, we will deliver, we are focused like a laser on making sure we can do it, but the suggestion we are going to be able to wave with our magic wand is one I want to disabuse you and everyone else of," he told a press conference.

The Fed acknowledged that inflation remained "elevated", which it said was in part due to rising energy prices, but said US economic activity was expanding at a "solid pace despite uncertainty caused by the conflict in the Middle East".

Warsh said he had wanted to and succeeded in having a "family fight" with his fellow policymakers on the rates decision.

"I asked for a good family fight, and I got one. That's the purpose. That's the design feature," adding that "there was a large majority support for the decision that we made in the room".

US stock markets ended the day lower following the decision. The benchmark S&P 500 hit its lowest level in a month, while the tech-heavy Nasdaq was down about 9% from its June record high. The Dow Jones index fell by the largest amount on the day by 2.19%.

Markets have been rattled in recent days by declines in AI-chip stocks, concerns over the amount of money being spent by big tech firms on AI infrastructure and development and rising oil prices.

Richard Flynn, managing director at Charles Schwab UK, said the "biggest smoke signal" for the Fed going forward was the energy market, with the ongoing conflict in Iran likely to influence future rate decisions.

Warsh, who was appointed by US President Donald Trump in May, has held interest rates twice since he took over as chairman.

He previously told Congress that the central bank had "no tolerance to persistently elevated inflation".

President Trump pushed Warsh's predecessor, Jerome Powell, to cut interest rates, and has made it clear he expects Warsh to fulfil his demand for reductions in borrowing costs for Americans.

But the new Fed chairman has said his "goal" is "for there to be no politics" and has stressed the importance of the Fed's independence.

Richard Carter, head of fixed interest research at investment management firm Quilter Cheviot, said Trump would be watching the Fed's decision with interest, particularly with the US mid-term elections less than 100 days away,

"The president will want to deliver positive news on the economy," he added. "Inflation continuing to remain elevated and the looming potential for rate hikes certainly makes that narrative difficult to achieve."