The Fed raises interest rates by 0.25 percentage points to 3.75–4.00 percent
Quick Look
- The Federal Reserve raises the key interest rate by a quarter of a percentage point to a range of 3.75-4.00 percent, which is in line with market expectations.
- The decision comes despite the likely displeasure of President Trump, as inflation is above target and fuel prices have risen due to the war in Iran.
- Kevin Hassett has previously said that Trump will defend Fed chief Kevin Warsh's independence even if he is not happy about the increase.
AI-generated summary
Why It Matters
The market had priced in an interest rate increase with over 90 percent probability ahead of the announcement. Inflation is above the Fed's target and energy prices have risen due to the war in Iran.
Before Wednesday evening's announcement, the market had priced in an increase with more than 90 percent probability.
The interest rate is now being raised by a quarter of a percentage point to a range of 3.75–4.00 percent.
Fed chief Kevin Warsh, who before he was due to take office, highlighted that the Fed could very well implement further interest rate cuts, has found itself in a precarious position.
US inflation is well above the central bank's inflation target and petrol and diesel prices have soared as a consequence of the Iran war. This means that he and the executive board were expected to raise the policy rate to overcome the inflationary pressure and thus go against Trump.
- I'm sure he won't be super happy, but he will defend Kevin Warsh's independence, Kevin Hassett, economic adviser to Trump, previously said about how the president would react to an interest rate hike.
What to Watch
AI outlook — possibilities, not facts
The Fed will consider further rate cuts if inflation falls fast enough
Possible · Within months
Open Questions
- Will the Fed raise interest rates further in the future?
- How will Trump react publicly to the decision?
- Is the war in Iran affecting energy prices in the long term?
