WASHINGTON: The Federal Reserve (Fed) has raised interest rates by a quarter percentage point and pencilled in an additional hike later this year, steps aimed at containing inflation that will test its chairman Kevin Warsh’s relationship with President Donald Trump.
“Today’s policy action will support a timelier return to the committee’s 2% goal,” officials said in a statement following the move Wednesday, referring to inflation.
It was the US central bank’s first rate increase since July 2023.
The Federal Open Market Committee voted unanimously to increase the benchmark federal funds rate to a range of 3.75% to 4%. Stocks rose and US Treasuries held their gains after the decision.
Heading into the decision, investors saw greater than a 90% probability the Fed would lift rates, based on pricing in federal funds futures, and they see another rate hike by year-end.
In a new set of rate projections released Wednesday, Fed officials’ median outlook for interest rates at end-2026 rose to 4.1% from 3.8%.
This signalled growing support for a series of rate hikes.
Sixteen officials projected at least one additional increase this year, up from six in June who saw two total increases in 2026.
The median projection for 2027 pointed to no additional rate hikes next year.
However, eight policymakers favoured moving another quarter point higher by end-2027 compared to where rates stand now. As in June, when Warsh declined to submit his own forecasts, only 18 of 19 officials provided rate projections for 2026 and 2027.
The rate increase comes after the Bureau of Labour Statistics reported last week that core inflation rose at a hotter-than-expected pace in August.
That added to growing concern that inflationary pressures may be broadening beyond the temporary effect of tariffs and the Iran war’s impact on energy prices.
With their decision to raise rates, policymakers also defied Trump, who recently threatened to escalate his trade wars if the Fed doesn’t lower interest rates. — Bloomberg
