Despite steadily increasing odds of a rate hike, the Federal Reserve chose to leave interest rates unchanged Wednesday.

Though Fed Chair Kevin Warsh pledged to deliver consumer price stability at his inaugural press conference as central bank chief in June, the rate decision ultimately reflected caution amid economic uncertainty.

“Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East,” the official Fed statement read. “Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little.”

The statement continued: “Inflation remains elevated relative to the committee’s 2% goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The committee will deliver price stability.”

Three regional Federal Reserve bank presidents — Beth Hammack of Cleveland, Neel Kashkari of Minneapolis and Lorie Logan of Dallas — dissented, each favoring a 0.25% increase to the federal funds rate.

Heading into the July meeting of the Federal Open Market Committee, the closely tracked CME FedWatch tool implied a roughly 70% chance the Fed would leave the benchmark borrowing rate unchanged. But flash back a month to the eve of the last FOMC meeting on June 16-17, and the odds of a rate hike were just 1.5% then.

Inflation pressures fueled by energy supply shocks from the war in Iran were largely to blame for the shift in market sentiment.

The Fed’s preferred inflation gauge, the personal consumption expenditures price index, registered 4.1% growth over the 12 months ending in May, according to a report dropped by the Bureau of Economic Analysis on June 25, a week after the June meeting concluded.

But another inflation metric watched by the Fed, the consumer price index, rose just 3.5% in June versus 4.2% in May, according to Bureau of Labor Statistics data released July 14.

Meanwhile, the BLS reported on July 2 that U.S. employers added a lackluster 57,000 positions in June compared to 129,000 in May. That bolstered the case for a rate hold, as increases to the fed funds rate trickle through the economy and increase borrowing costs for employers, who are consequentially less likely to be in hiring mode.

Prior to the July meeting, the FOMC had left rates unchanged for four straight meetings following a series of rate cuts at the end of 2025, when Jerome Powell still served as Fed chair. The last increase to the benchmark rate occurred in July 2023, when the central bank was still in the process of taming runaway inflation during the pandemic era.

Now, the odds shift heavily in favor of a rate hike in September — though Warsh’s post-decision comments may change that calculus, and several key economic reports are set for release in the seven weeks that lie ahead before the FOMC convenes again.