Graphs, Data, Perspectives | Why the US Fed hiked rates, and what to make of its decision

In September 2019, the Federal Reserve (Fed) decided to increase the Federal Funds Rate (FFR) by 25 basis points. The Fed's decision raises the cost of credit for banks, which, in turn, makes loans more expensive for consumers. Higher borrowing costs can lead to lower demand for goods and services, potentially curbing inflation. The Fed's decision comes amid concerns about the economy's growth and inflation rate.

The Fed's decision to raise interest rates has been interpreted in different ways. On one hand, it could be seen as hawkish, indicating a strong focus on controlling inflation. On the other hand, some argue that the decision was not as hawkish as expected and could even be considered dovish, showing a more moderate approach to curbing inflation.

The Fed's dual mandate is to achieve price stability, with a target inflation rate of 2%, and to promote maximum employment. However, it doesn't have a specific target for employment. The Fed's primary focus is usually either curbing inflation or boosting employment, depending on which issue is seen as more pressing.

In September, the Fed Chair Kevin Warsh stated that while the economy was growing and unemployment remained stable, inflation had remained elevated. He believed that the rate hike would help bring inflation back to the Fed's target of 2% by 2029. However, some believe that the decision was not as hawkish as it could have been, as the Fed didn't plan for additional rate hikes within the next year.

President Donald Trump criticized the Fed's decision, stating that interest rates should be much lower given the strength of the US economy. Despite the differing interpretations of the Fed's decision, the hike signals that the Fed remains committed to addressing inflation concerns.