U.S. Fed holds interest rates, now sees just one cut this year

US Federal Reserve leaves key lending rate unchanged, signaling only one rate cut this year amid inflation concerns.

The US Federal Reserve left its key lending rate unchanged on Wednesday and penciled in just one rate cut this year, down from the three expected in March after inflation stalled in the first quarter.

The Fed voted unanimously to keep its benchmark interest rate between 5.25 and 5.50%, and said that "modest" progress had been made toward its long-term inflation target of 2%.

The announcement suggests that central bank officials remain wary about cutting rates too soon, despite consumer inflation data published earlier Wednesday, which pointed to a slowdown in the rate of price increases in May.

The annual consumer price index (CPI) came in at 3.3% last month, down 0.1 percentage point from April and unchanged on a monthly basis, the Labor Department said. This was slightly below expectations.

Fed chair Jerome Powell welcomed the inflation data during a press conference on Wednesday, but added that the US central bank needs to see more "good inflation readings" before it gains sufficient confidence to consider cutting interest rates.

He added that if the US economy remains strong and inflation persists, the Fed would be "prepared to maintain the current target range for the federal funds rate as long as appropriate."

The surprise of the day came in the Fed's updated economic forecasts from the 19 members of its rate-setting Federal Open Market Committee (FOMC).