Fed holds rates steady but three officials back increase

The Federal Reserve on Wednesday kept interest rates unchanged despite growing divisions among policymakers to more directly tackle inflation after five years of overshooting the central bank's 2% target.

The Fed voted 9-3 to maintain rates at 3.5% to 3.75%, a level that has been in place since January. Beth M. Hammack of the Federal Reserve Bank of Cleveland, Neel Kashkari of the Minneapolis Fed and Lorie K. Logan of the Dallas Fed dissented, voting instead for a quarter-point increase.

The divisions underscore the tough spot the Fed and its chair, Kevin Warsh find themselves in as new sources of price pressures threaten to compound an already complicated and long-standing inflation problem.

Oil prices have whipped around in recent days with the Iran war in a delicate limbo. A deal to end the conflict and reopen the Strait of Hormuz, a crucial shipping path for global energy markets, remains distant. President Donald Trump, speaking to reporters after the Fed's decision, signaled that the fighting was far from over. He said the United States would mount another round of attacks against Iran. "It's our turn," he said, promising to "hit them very hard."

Trump is also actively adding new tariffs, and the labor market is still digesting immigration restrictions he has put in place. Officials are also dealing with booming demand for products tied to the sharp rise in artificial intelligence investment. Supply has yet to catch up, leading to higher prices on items such as semiconductors, computer chips and servers.

The debate at the Fed centers on how quickly inflation will ease as some temporary factors fade, and whether rate increases will ultimately be necessary to get inflation to return to target.

Warsh, who presided over his second

meeting as chair of the central bank, owns

the outcome.

Since taking the reins in May from Jerome Powell, who is now a Fed governor, Warsh has staked his reputation on vanquishing inflation.

Warsh, speaking at a news conference Wednesday, was pressed to explain how keeping rates steady was compatible with his "price stability" pledge. He opened the news conference by saying that "where necessary and appropriate, we will not hesitate to act."