The US Federal Reserve (Fed) on Wednesday raised interest rates for the first time since 2023, reversing policy direction. iran war It drives up global energy prices and accelerates inflation.
The Fed raised the federal funds rate by 0.25 percentage point, bringing its target range to between 3.75% and 4%, the highest level since December 2025. Base interest rates affect the cost of borrowing across the U.S. economy, including credit cards, auto loans, and personal loans.
In a series of quarterly forecasts, the Fed also indicated that it expects its rate-setting committee to raise rates again before the end of the year. The Fed announced that the vote to raise the benchmark interest rate was unanimous. statement on wednesday.
No rate hike in 2027
But so far, the Fed’s actions do not appear to signal the start of an aggressive interest rate hike campaign. Federal Reserve Chairman Kevin Warsh said Wednesday that policymakers expect to keep interest rates on hold through 2027.
“Inflation has been above target for more than five years,” Warsh said at a press conference after the rate announcement. “So our primary focus is on the price stability aspect of our mandate. The plain fact is that inflation is too high and has been there for too long.”
About half of FOMC members expected interest rates to remain unchanged next year.
“We do not believe this is the start of another major tightening cycle. Markets are overpriced for next year’s tightening,” Michael Pearce, chief US economist at Oxford Economics, said in a research note.
By contrast, the central bank has raised interest rates 11 times since 2022 to quell a surge in inflation as the economy recovers from the pandemic.
Still, the rate hikes mark a shift from the Fed’s stance at the beginning of the year, when inflation was cooling and many economists expected the central bank to keep rates lower throughout 2026. Instead, monetary policymakers are wielding their most powerful weapon to control prices. Consumer price index rose significantly annual rate 3.4% In August, it significantly exceeded the Fed’s annual target of 2%.
President Trump has repeatedly called on the Fed to lower borrowing costs. But escalating conflicts in the Middle East are disrupting oil production and supplies, raising fuel prices in the United States and raising costs across the economy.
Asked Wednesday how the president would react to the rate hike, Warsh said, “There’s nothing in terms of discussions with the president.”
Why stocks fell after Warsh’s comments
“Raising rates was the right thing to do, and it restores confidence in the Fed to control inflation, no matter what the White House or anyone else says,” Long said. “The big news is that the vote was unanimous and the forecast only suggests one more rate hike in 2026.”
Higher interest rates can reduce inflation as consumers spend less and businesses invest less. This slows economic growth and suppresses price increases as demand slows.
Stocks fell after Warsh said the U.S. economy “seems to be strengthening” and reiterated his commitment to curbing inflation. Some investors interpreted his comments as a sign that the central bank believes the economy can withstand further interest rate hikes if necessary to ultimately rein in inflation.
“After Warsh ended, stocks fell. Why? Warsh was a hawk today,” Heather Long, chief economist at Navy Federal Credit Union, said in an email. “How much rate increases beyond that is an open question and will likely depend on the war in Iran and how insatiable the data center construction boom is.”
In late afternoon trading, the Dow Jones Industrial Average fell 757 points, or 1.5%, to $51,337, the S&P 500 was down almost 1% and the tech-heavy Nasdaq was down 0.4%.
Rising borrowing costs
Financial experts say banks will likely respond to the Fed’s latest rate hike by raising interest rates on credit cards and other lending products, but a single 0.25 percentage point hike may not significantly increase borrowing costs.
Still, the increase in borrowing costs comes as Americans shoulder higher costs for gasoline, food and other necessities.
“Consumer sentiment is currently 13% lower than it was this time last year,” Heather Boushey, professor of practice at the Kleinman Center for Energy Policy at the University of Pennsylvania, said in an email. This week’s Fed rate hikes “will make it harder for families to borrow money and raise the cost of auto loans, credit cards, mortgages, and more.”