The US Federal Reserve has raised its inflation forecast as it held interest rates steady, citing an "uncertain" economic outlook due to the war in Iran.

The 11-1 vote on the benchmark lending rate was widely expected, but nonetheless defied US President Donald Trump's demands for a reduction as the world's largest economy battles stubborn inflation and weak labour demand.

Rates were kept steady at a range of 3.50 percent to 3.75 percent, with officials flagging one expected cut by the end of the year.

However, the Fed raised its inflation outlook, now expecting its preferred personal consumption expenditures (PCE) measure to stand at 2.7 percent by December 2026.

"In the near term, higher energy prices will push up overall inflation," Fed Chair Jerome Powell said, referring to steeper costs from the war in the Middle East.

Trump has repeatedly criticised Powell for not slashing rates.

In January, the Fed chair revealed that the US Justice Department had opened an investigation into him related to cost overruns on renovations at the bank's headquarters.

Powell was adamant on Wednesday that he would not leave the Fed's board until the investigation is completed.

"I have no intention of leaving the board until the investigation is well and truly over, with transparency and finality," he said.

With war in the Middle East causing oil prices to spike, analysts said policymakers were unlikely to make immediate moves.

The only dissenting voice came from Fed Governor Stephen Miran, a close ally of Trump, who voted for a quarter-point cut.