The Federal Reserve has raised its benchmark interest rate by 25 basis points, ending a run of reductions that began in late 2024 and delivering its first increase in more than three years. The Federal Open Market Committee (FOMC), led by chair Kevin Warsh, voted unanimously on Wednesday to lift the target range to 3.75% to 4.00%.
The decision follows a period in which the central bank had moved in the opposite direction. The Fed raised rates throughout 2022 and 2023, then held them at a multiyear high of 5.25 percent to 5.5 percent for more than a year as inflation eased. It began a series of cuts in late 2024.
Wednesday’s increase shows the committee’s concern that inflation remains above its 2 percent target. Annual inflation stood at 3.4 percent in August, measured by the consumer price index. That was below the three-year high of 4.2 percent recorded in May, though still above the Fed’s goal.
The personal consumption expenditures price index, the Fed’s preferred inflation measure, reached 4.1 percent in May and stood at 3.7 percent in July. The median projected inflation rate for this year was 3.7 percent, up from 3.6 percent in June.
Warsh said the committee was focused chiefly on restoring price stability. “Our predominant focus is on the price stability side of our mandate. The plain fact is that inflation is too high, and has been for too long”
He said the latest increase was intended to bring inflation back to the target more quickly. “Today's policy action will support a timelier return to the committee's 2% goal”
The decision had been widely expected. Roughly 85 percent of economists surveyed by Reuters over the weekend had forecast a quarter-point increase.
Higher benchmark rates are likely to feed through to households borrowing for major purchases, including homes, cars and large appliances. People already paying interest on credit card debt are also likely to face higher monthly payments and borrowing costs.
Savers, meanwhile, can expect interest rates on savings accounts and certificates of deposit to rise. The Fed did not set out in the available information what specific indicators prompted the reversal from its late-2024 cuts, or whether further increases are expected.
Comments (0)