The U.S. Federal Reserve indicated it is not in a hurry to lower interest rates, with policymakers suggesting borrowing costs could remain at current levels until at least early 2027, according to minutes from the June Federal Open Market Committee (FOMC) meeting released on Wednesday.

The committee unanimously agreed to keep the federal funds rate within a target range of 3.5% to 3.75%, reflecting continued caution as inflation remains above the central bank's long-term objective.

The minutes revealed differing views among Fed officials. A small number of policymakers believed another rate increase could become necessary if inflation continues to prove persistent. Others argued that current policy is already restrictive enough to justify eventual rate cuts. Despite these differences, members agreed that holding rates steady was the appropriate decision at the June meeting.

Looking ahead, officials remain divided over the direction of monetary policy. Many participants expect interest rates to finish the year around or slightly below current levels, while an equally significant group believes rates may need to move higher before inflation is fully brought under control.

Investor expectations shifted sharply following the release of the minutes and escalating geopolitical developments. U.S. President Donald Trump said an interim peace agreement with Iran was "over" and suggested additional U.S. military strikes could take place, while also expressing uncertainty about pursuing another diplomatic agreement.

The comments briefly pushed Brent crude oil above US$80 per barrel, raising concerns that higher energy costs could add further pressure to inflation.

Financial markets reacted negatively to the developments. The Dow Jones Industrial Average fell around 570 points, or approximately 1%, while the S&P 500 declined 0.3% and the Nasdaq Composite slipped 0.1%.

According to CME Group's FedWatch Tool, market pricing also shifted toward a greater likelihood of tighter monetary policy. The implied probability of a September rate hike climbed to 68.8%, up from 62% a day earlier, while expectations for a rate increase by December rose to more than 85%.

The Fed has repeatedly emphasized that inflation remains its primary concern. Policymakers noted that persistent price pressures, particularly those driven by higher energy costs, could delay any easing cycle. Recent data showed the Core Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred inflation gauge, rose 3.4% year over year in May, marking its fastest annual increase in nearly three years. Meanwhile, the Core Consumer Price Index increased 4.2% over the same period, supported by a sharp rise in gasoline prices.

With inflation still running well above the Federal Reserve's 2% target and geopolitical risks adding uncertainty to the outlook, policymakers signaled they will continue taking a data-dependent approach before considering any adjustments to interest rates.

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