The FED Open Market Committee unanimously decided to raise the interest rate range to 3.75–4 percent, citing increased inflation. The committee also noted that raising interest rates will help achieve the 2 percent inflation target faster.
According to the central bank’s “Summary of Economic Projections” released on Wednesday, most FED policymakers believe that at least one more interest rate hike will be needed by the end of the year.
The world’s largest economy has been facing higher inflation for several years. Prices surged due to the war with Iran initiated by US President Donald Trump, his tariff policies, and the ongoing artificial intelligence boom.
The FED has not changed interest rates since January, deciding to wait until the impact of energy price spikes is assessed and to allow the effect of tariffs on prices to spread throughout the economy.
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However, at the July meeting, a quarter of the committee members disagreed with the decision not to change interest rates and urged an immediate increase. Since then, other policymakers, including FED Chairman Kevin Warsh, have hinted that if inflation does not slow significantly, the FED may need to take action.
Inflation data released last Friday showed that the consumer price index in August, compared to July, remained unchanged at 3.4 percent, but it still significantly exceeds the FED’s long-term target of 2 percent.
Wednesday’s decision is the first time the FED has raised interest rates since 2023. Such a move will undoubtedly anger President D. Trump, who launched an unprecedented campaign to pressure the independent central bank to lower interest rates to stimulate economic activity.
