The Federal Reserve left US interest rates unchanged at 3.5%-3.75%, but the message was much tougher than investors expected. New chair Kevin Warsh used his first meeting to stress that the Fed will “deliver price stability”, while policymakers dropped their previous bias towards rate cuts. With inflation still above target, helped higher by the Iran-related energy shock, half of Fed officials now see a rate rise by year-end. This means borrowing costs may stay high for longer, and a cut now looks unlikely unless inflation falls clearly. Markets reacted sharply: traders priced in a quarter-point hike by October, the two-year Treasury yield jumped to about 4.22%, the dollar rose more than 1%, and the S&P 500 fell 1.2%.