US Federal Reserve raises interest rates for first time since 2023

The US Federal Reserve has raised interest rates for the first time since July 2023, lifting its benchmark rate by a quarter of a percentage point to a target range of 3.75-4%. The decision passed unanimously by a 12-0 vote, notably including two of President Donald Trump's own appointees, undercutting any suggestion the hike was politically motivated against him.

Fed chair Kevin Warsh said inflation remains too high and has stayed elevated for too long — running above the central bank's 2% target for more than five years. He noted, however, that the labor market remains solid, with low unemployment and steady job growth pointing to overall economic resilience.

War drives up prices

A major factor behind the inflation pressure is the ongoing US-Israel war against Iran, which has pushed up energy costs. Gasoline prices have averaged about $1 a gallon higher than a year ago, while diesel fuel recently hit an all-time high of $6.31 a gallon. Inflation concerns have also triggered a sell-off in the US bond market, sending the yield on the 10-year Treasury note to a 19-year high.

The move carries political weight, since Trump has repeatedly pushed the Fed to cut rates and had appointed Warsh in hopes of a more accommodative stance. Warsh, however, has repeatedly stressed the central bank's independence from political pressure. Democratic congressman Brendan Boyle linked the rate hike to Trump's tariff policies and the Iran war, arguing they were responsible for the renewed price surge.

Real wages fell in August while consumer sentiment declined further, according to a University of Michigan survey. The decision lands against a tense backdrop ahead of November's midterm elections, with both parties seeking to make cost-of-living concerns central to their campaigns.