Federal Reserve raises interest rates for the first time since 2023

On Wednesday, the Federal Reserve increased interest rates for the first time since 2023, responding to the impact of the Iran war on global energy prices and inflation. The central bank raised the federal funds rate by 0.25 percentage points, setting its target range between 3.75% and 4% - the highest level since December 2025.

This decision reverses the Fed's earlier stance at the start of the year when inflation was declining and many economists anticipated rate cuts throughout 2026. The unanimous vote to raise the benchmark rate indicates the central bank's intention to curb prices and return inflation to its 2% annual target. The Consumer Price Index rose by 3.4% in August, significantly above the Fed's goal.

In a statement, the Fed emphasized that the rate increase will help achieve a timely return to its 2% inflation objective. The hike is expected to support a series of rate hikes later this year, with the Fed's economic projections suggesting an additional increase before the end of the year. Higher interest rates can reduce inflation by decreasing consumer spending and business investments, thereby slowing down economic growth and price increases.