Il Nuovo Postiglione - US Fed begins meeting with markets expecting steady interest rates

The Fed's Open Market Committee (FOMC) will announce its decision at 2:00 pm local time (1800 GMT) on Wednesday, followed by a press conference by Fed chair Kevin Warsh.

It is Warsh's second meeting since taking charge of the Fed following his nomination by US President Donald Trump, who has exercised unprecedented pressure on the central bank to lower interest rates.

US households have been battered by years of high prices since the Covid pandemic, with the Fed failing to achieve its long-term two-percent inflation goal for more than five years.

Consumer inflation eased to 3.5 percent year-on-year last month, but is expected to rise again on the back of seesawing oil prices from Trump's war on Iran, which saw renewed fighting in recent weeks.

Since taking office Warsh has repeatedly said the Fed is committed to deliver price stability, and several of his fellow policymakers have spoken vocally about the need to address surging inflation.

The Fed has a dual mandate to keep inflation to its long-term target while ensuring maximum employment in the world's largest economy.

With the US unemployment rate relatively stable at around 4.2 percent, Fed policymakers have made it clear that that their focus is on inflation.

The Fed's main tool for achieving its policy goals is setting the economy's key interest rate: raising rates tends to cool economic activity and inflation, while lowering them spurs activity and employment but can cause prices to rise.

At their last meeting, half of policymakers indicated that they saw the need for at least one rate hike before the end of the year.

Markets have been pricing in that possibility, with investors giving a more than 30 percent probability that the rate hike could come as soon as Wednesday, according to CME's FedWatch tool.

Even if policymakers do hold rates steady, all eyes will be on whether any voting members of the 12-member committee dissent.

Trump has put immense pressure on the Fed to cut rates. He subjected Warsh's predecessor Jerome Powell to a criminal probe over a Fed renovation project, and attempted to fire Fed Governor Lisa Cook.

The probe was later dropped to ease Warsh's Senate confirmation, while the Supreme Court blocked Cook's firing.

Warsh insists he is not Trump's "puppet," and on Monday the Republican president appeared to give the Fed chair some breathing room.

"Kevin's fantastic, but he's got a board," he told reporters on board Air Force One.

"I know what he wants to do, but you need the consent of some people," he said, adding without evidence that he questioned the intentions of some Fed policymakers.

R.Agosti--INP