US Federal Reserve keeps rates unchanged; revises inflation outlook upward to 2.7%

The US Federal Reserve on Wednesday kept its benchmark interest rate unchanged at 3.5%-3.75% as policymakers weighed the impact of rising geopolitical tensions in the Middle East alongside signs of moderating economic momentum. The decision was widely expected, with markets factoring in a pause as oil price volatility linked to the Iran conflict raises fresh concerns around inflation while growth indicators show early signs of softening.

The Fed revised its outlook for its preferred inflation measure, projecting it at 2.7% by the end of 2026, citing potential price shocks from the war in Iran. In its Summary of Economic Projections, the Fed raised its forecast for headline PCE inflation from 2.4% to 2.7%. Core inflation, which excludes volatile items, was also revised upward from 2.5% to 2.7%.

The Fed had cut rates three consecutive times last year before pausing earlier this year. Policymakers continue to balance their dual mandate of keeping inflation near the 2% target while supporting employment. The ongoing Middle East conflict has added complexity to that task. Higher oil prices risk feeding into inflation while also weighing on growth through supply chain disruptions and rising input costs.


Although US inflation has eased significantly from pandemic-era highs, it remains above the central bank's comfort level, keeping policymakers cautious about any premature easing.

Indian markets

Back home, benchmark indices BSE Sensex and Nifty ended nearly 1% higher on Wednesday, extending their winning streak to a third session. The Sensex jumped 633 points to settle at 76,704, after hitting an intraday high of 77,000. The Nifty also ended higher, supported by easing crude prices and firm global cues.

Analysts expect a largely measured reaction from Indian equities to the Fed outcome, given that the policy stance was in line with expectations.

Naveen Vyas, senior vice president at Anand Rathi Global Finance, said markets have already priced in much of the uncertainty. "We anticipate a largely neutral market reaction to an unchanged policy stance," he said, adding that expectations of a more accommodative policy shift ahead could provide support.

Sunny Agrawal, head of fundamental research at SBI Securities, said the outcome is unlikely to trigger sharp moves. "This event will be neutral from an equity market perspective. Commentary on inflation and jobs data will be the key monitorables," he said.