Fed hikes rates for first time in over 3 years

Wall Street stocks fell while the dollar advanced on Wednesday after the Federal Reserve lifted interest rates for the first time since 2023. The broad-based S&P 500 ended the day down 0.5%. All three major US stock indices closed lower, with the S&P 500 dropping by 0.5%. The dollar gained against the euro and other major currencies, and increases in Treasury yields suggested that markets interpreted Fed chair Kevin Warsh's comments as suggesting that the inflation fight would require more than a single rate hike.

The Federal Open Market Committee unanimously voted to raise rates to a range of 3.75% to 4.00%, citing elevated inflation and indicating that the rate hike would facilitate a return to the Fed's 2% inflation target. Fed policymaker Kevin Warsh stated that the decision was serious but necessary to combat high inflation. The Fed's action may face criticism from President Donald Trump, who has previously shown skepticism towards Fed chair Jerome Powell.

President Trump has also been outspoken in his desire for lower interest rates and has taken steps to challenge the independence of the central bank. Following the Fed's decision, bourses in Europe experienced a brief boost due to a drop in oil prices, driven by reports of a potential resolution to a key pipeline outage for Saudi crude.

The Fed's decision will be followed by the Bank of England, which is expected to keep its benchmark interest rate steady amid UK economic growth that is below expectations and high inflation. Official data showed that UK annual inflation remained well above the Bank of England's 2% target, reaching 3.1% in August driven by rising fuel costs.

The Bank of Japan is also expected to raise interest rates on Friday to address inflation and support the yen. Investors are also monitoring a planned summit between US President Donald Trump and Chinese President Xi Jinping, with speculation that the two leaders may agree to reduce tariffs as part of their discussions.