US Federal Reserve says inflation remains high, rate hike to support targets

On Wednesday, the US Federal Reserve raised interest rates for the first time under new Chair Kevin Warsh, projecting additional hikes in the coming months. This decision, made unanimously, acknowledges the Trump administration's failure to control inflation despite their efforts. President Trump had promised to lower prices during his watch, but persistent inflation, fueled by global import tariffs, a US-Israeli war with Iran, and AI boom capital spending, kept price pressures high.

The Fed increased its benchmark overnight interest rate by a quarter of a percentage point, bringing it to the 3.75%-4.00% range.

Of the 18 policymakers, 16 anticipate at least one more quarter-percentage-point hike by year-end, with only two expecting rates to remain stable. Kevin Warsh did not submit a rate projection. The US dollar rose against the euro after the Fed's announcement, while US Treasury bond yields remained relatively steady, having already weakened in anticipation of the hike. The 10-year Treasury yield was at 4.958%, and the 30-year bond yield at 5.312%, both down from their previous values.

Market expectations for a rate hike at the Fed's next meeting in late October increased to 56.5% from 54% before the hike. Michele Raneri, head of US research and consulting at TransUnion, stated that the Fed's decision reflects its focus on addressing persistent inflation, which has moderated from peak levels but remains elevated. By the end of 2027, the policy rate is expected to rise to the 4.00%-4.25% range.

The Fed's new policy statement and economic projections signal that the central bank is opening the door to tighter monetary policy through next year. The policy rate is projected to reach the 4.00%-4.25% range by year-end and remain at that level until 2027. Warsh's upcoming press conference will provide more insights into the reasoning behind the rate increase and the likelihood of further actions.