The U.S. Federal Reserve on Wednesday left interest rates unchanged at a 22-year high of 5.25 percent to 5.5 percent as the latest consumer price data shows that inflation seems to be cooling.

In a statement after the two-day policy meeting, the Federal Open Market Committee (FOMC), the Fed's policy-setting body, reiterated that the committee does not expect it will be appropriate to reduce the target range "until it has gained greater confidence that inflation is moving sustainably toward 2 percent."

In addition, the committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, the FOMC said.

The Fed's announcement came just a few hours after the U.S. Labor Department reported that the Consumer Price Index (CPI) in May increased 3.3 percent from a year ago, after climbing 3.4 percent in April and 3.5 percent in March.

"The most recent inflation readings have been more favorable than earlier in the year, and there has been modest further progress toward our inflation objective," Fed Chair Jerome Powell said at a press conference Wednesday afternoon.

"We welcome today's reading and hope for more like that," said Powell.

The core CPI rose 3.4 percent in May year on year, the smallest 12-month change since April 2021, Sarah House and Michael Pugliese, economists at Wells Fargo Securities, noted in an analysis.

"That said, inflation remains above the Fed's target, and there have been enough false starts in the past that the FOMC likely will need to see at least a couple more rosy inflation reports to gain the 'greater confidence' needed to start reducing the federal funds rate," the economists said.

At the press conference, Powell also said that committee members "need to see more good data to bolster our confidence that inflation is moving sustainably toward 2 percent."

According to the Fed's latest quarterly summary of economic projections released Wednesday, Fed officials' median projection of core personal consumption expenditures (PCE) inflation is 2.8 percent at the end of this year, up from 2.6 percent in the March projection.

When asked about inflationary pressures on the economy, Powell told reporters that "it's true that inflationary pressures have come down but we're still getting high inflation readings."

"I think you can see it in various places in some parts of non-housing services, you see elevated inflation still and ... it could be to do with wages," he said.

"There's been a surprising increase in import prices on goods which is kind of hard to understand," he said.

"Of course housing services, you're continuing to see high readings there to some extent, that's catch-up inflation from earlier pressures," Powell added.

The quarterly economic projections also showed that Fed officials' median projection for the appropriate level of the federal funds rate is 5.1 percent at the end of this year, up from the 4.6 percent in the March projection.

The closely-watched dot plot, where each FOMC participant sees the Fed funds rate heading, shows that seven out of the 19 members expect one 25-basis-point rate cut by the end of this year, while eight members expect two cuts.

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