Fed raises rates for first time in three years! Policy rate reaches 4% ceiling

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Fed has announced the rate decision that global markets had been awaiting for weeks.

The Federal Reserve has announced the rate decision that global markets had been awaiting for weeks. With inflation remaining above target and economic indicators continuing to show resilience, the U.S. central bank raised interest rates for the first time since July 2023. The Federal Open Market Committee approved the 25-basis-point increase unanimously, with all 12 members voting in favor.

Fed lifts rates to 3.75%-4% range

The Federal Open Market Committee increased the target range for the federal funds rate by 25 basis points to 3.75%-4%.

The decision was approved by a 12-0 vote with no dissent. It marked the Fed’s first rate hike in nearly three years.

Inflation remains the main concern

In its statement, the Fed said economic activity continued to expand at a solid pace and domestic spending remained resilient despite elevated uncertainty linked partly to geopolitical developments.

The central bank also noted that productivity growth remained strong, capital investment was solid, employment gains were keeping pace with labor-force growth and the unemployment rate had not changed significantly.

Pointing out that inflation remained elevated, the Fed said the rate increase was intended to support a more timely return to its 2% inflation target.

Warsh had already signaled further action

Kevin Warsh, who succeeded Jerome Powell as Fed chair, had warned in late August that underlying price pressures had not improved sufficiently.

Warsh said the Fed still had “work to do” unless there was fresh evidence showing inflation was moving convincingly toward the central bank’s 2% target.

Markets had expected a 25-basis-point increase

Strong labor-market conditions and inflation remaining above the Fed’s target had strengthened expectations of a rate increase ahead of the September meeting.

Money markets had largely priced in a 25-basis-point hike before the decision was announced. The Fed’s previous rate increase came in July 2023, when it raised the policy rate by 25 basis points to a range of 5.25%-5.50%.