WASHINGTON, September 17 — The United States Federal Reserve has raised its benchmark interest rate for the first time since 2023, signalling a sharp policy shift as inflation refuses to loosen its grip on the world’s largest economy.
The Federal Open Market Committee, the central bank’s policymaking body, voted 12-0 on Wednesday to raise the overnight funds rate by a quarter of a percentage point, bringing the target range to 3.75–4 per cent. The increase undoes one of the three rate cuts delivered last year. (CNBCCNN)
The decision marks the first major move under the new Fed chairman, Kevin Warsh, who took charge in May. Announcing the decision, Warsh said the economy had strengthened and that stable prices had been a problem for more than five and a half years, adding that the committee had acted to ensure a timely return to price stability. He also said he would be hard-pressed to call financial conditions restrictive, and that the committee had therefore removed a dose of accommodation. (Yahoo Finance)
Price pressures have built steadily through the year. The Fed’s preferred inflation gauge stood at 3.7 per cent in July compared with a year earlier, up from 2.3 per cent in April 2025, while core inflation, which strips out food and energy, reached 3.3 per cent — far above the central bank’s 2 per cent target. Officials have pointed to the disruptive war in the Middle East, which has unsettled energy markets, as well as the potential inflationary effect of the massive build-out of artificial intelligence infrastructure.
Consumers have not pulled back. Retail sales jumped 1.2 per cent in August from the previous month, suggesting households are still spending healthily even as sentiment surveys show Americans remain gloomy — a sign that rates at their earlier level were not restraining the economy enough. (NBC4 Washington)
For ordinary borrowers, the effect will be felt gradually. Higher policy rates typically translate over time into costlier mortgages, auto loans and credit card balances. Bond markets have already moved ahead of the Fed, with the yield on 10-year Treasurys climbing above 5 per cent this week.
The move carries obvious political weight. It lands just weeks before the midterm elections and in defiance of repeated demands from President Donald Trump, who appointed Warsh, for lower borrowing costs. Hours after the announcement, Trump wrote on Truth Social that American interest rates should be 1 per cent or less. Affordability has become a leading issue in the campaign, with voters squeezed by grocery, fuel and housing costs. US Fed raises interest rates for first time in three years | Inflation News | Al Jazeera +2
The Fed’s quarterly projections indicate one further quarter-point increase this year, taking the key rate to roughly 4.1 per cent. Policymakers currently foresee no hikes in 2027.
