Rates must reflect inflation risks

The US Federal Reserve has increased interest rates by 25 basis points, setting the target range for the federal funds rate between 3.75 and 4 percent, as inflation continues to remain persistently high. Federal Reserve Chair Kevin Warsh declared, "The plain fact is that inflation is too high and has been for too long." In August, US consumer prices increased by 0.4 percent, keeping the 12-month rate at 3.4 percent, with energy prices, particularly gas and diesel, driving inflation.

President Donald Trump opposed the rate hike, stating on social media that high interest rates put the USA at a disadvantage. Despite this, the projected US inflation rate for 2026, 2027, and 2028 is 3.7 percent, 2.3 percent, and 2.1 percent, respectively, indicating potential further rate hikes. The labor market is robust, with 1.6 lakh jobs added in August and a 4.1 percent unemployment rate, providing more room for policymakers to address inflation.

Central banks worldwide are tightening rates, with the European Central Bank also raising rates by 25 basis points. With inflation pressures and economic data, further adjustments to policy rates are required.