US Fed hikes rates, sees more tightening in search of ‘timelier’ drop in inflation
The bank has raised its benchmark overnight interest rate by a quarter of a percentage point to the 3.75-4 per cent.
On September 16, the Federal Reserve increased interest rates by a quarter of a percentage point, raising the benchmark overnight rate to 3.75% to 4.00%. Fed Chair Kevin Warsh joined the unanimous decision, acknowledging the Trump administration's failure to control inflation. The move was prompted by global import tariffs, an energy shock following the US-Israeli war with Iran, and capital spending from the AI boom, all contributing to persistent price pressures.
Of the 18 policymakers, 16 anticipated at least one more quarter-point hike by year-end, with only two members expecting rates to stay stable. Warsh, the new Fed chief, did not submit a rate projection for this meeting. The policy statement signaled tighter monetary policy through 2027, with the policy rate potentially reaching 4.00% to 4.25% by year-end and staying at that level in 2027.
The statement removed a reference to "supply shocks" in the energy sector, acknowledging that price pressures are broader than initially thought. Warsh's press conference, set for 2:30pm EDT, will provide further insight into the logic behind the rate hike and the likelihood of additional increases. The rate hike occurred less than two months before the midterm elections, which could impact the outcome of congressional control for Trump's Republicans.
Gasoline prices are about a third higher than a year ago, and 30-year fixed-rate mortgages are nearing 7%, causing voter frustration. Inflation is expected to remain elevated until 2029, a year later than previously anticipated, while economic growth is projected at 2.3% and unemployment at 4.1% by year-end.
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