The US Federal Reserve raised its benchmark rate on Wednesday, ending a prolonged period of policy restraint as renewed inflation pressures force officials to act against stubborn price growth.
In a statement, the Federal Open Markets Committee said that the Federal Fund rate was being raised by 25 basis points to 3.75-4.00 per cent range. Recent data showing elevated consumer prices and rising energy costs have strengthened the case for tighter monetary policy.
The move marks the first increase since July 2023, when the central bank concluded its aggressive post-pandemic tightening cycle. Since then, rates have either been cut or held steady, meaning borrowing costs have not risen for more than three years.
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Inflation, however, remains above the Fed’s 2 per cent target, driven partly by higher fuel and energy prices. Analysts say the expected hike underscores policymakers’ determination to restore price stability even at the risk of slower economic growth.
A majority of Fed policymakers expect at least one more rate hike to be necessary before the end of the year, according to the central bank’s Summary of Economic Projections, also published Wednesday.
The US economy has been dealing with years of higher-than-target inflation, and prices have surged in the wake of Trump’s war on Iran, his signature tariff policies and the ongoing AI boom.
The Fed has held rates steady since January, choosing to wait to gauge the effects of energy price shocks and to let the impact of tariffs on prices ripple through the economy.
Source: Khaleej Times