The Fed finally raises benchmark interest rate

Tokyo (ANTARA) - The United States Central Bank, the Federal Reserve (The Fed), raised its benchmark interest rate on Wednesday (16/9) for the first time since July 2023 in response to an inflation surge triggered by the war in Iran.

The 0.25 percentage point increase brings the federal funds rate, which is charged by commercial banks to one another for overnight loans, to a new target range of 3.75 to 4 per cent.

The Federal Open Market Committee (FOMC), which determines the central bank’s interest rate decisions, unanimously approved the hike.

Out of the 18 FOMC officials providing the latest projections, 12 signalled a further quarter-point interest rate hike later this year. Meanwhile, four other officials projected two more increases, while the remaining two officials expect interest rates to remain at the new level.

Since December, the Fed has maintained the target interest rate range at 3.50 to 3.75 per cent.

“Economic activity is growing at a solid pace. Although uncertainty remains high, partly due to geopolitical developments, domestic spending remains resilient. Inflation remains high. Today’s policy will support a more timely return of inflation towards the 2 per cent target,” the committee stated in a joint announcement.

Inflation in the US has remained above target for more than five years. The FOMC still has two more opportunities to take action this year, with the next meetings scheduled for October and December.

The Fed’s latest decision could potentially lead to a disagreement between its chairman, Kevin Warsh, and Trump, who has consistently demanded interest rate cuts in hopes of boosting spending and stimulating economic growth.

The interest rate hike causes borrowing costs for consumers to rise; consequently, mortgages, vehicle loans, and credit cards become more expensive.

“The simple fact is that inflation is too high and has been for too long. This summer’s inflation data does not show me that the underlying trend has improved significantly. Price stability is the foundation of economic growth, and I believe we are taking an important step today to achieve it,” said Warsh.

This was the third meeting led by Warsh since he replaced Jerome Powell in May. Powell had previously faced repeated pressure from Trump to cut US benchmark interest rates.