US Federal Reserve raises key interest rate for the first time since mid-2023
Quick Look
The U.S. Federal Reserve raised interest rates by 0.25 percentage points to 3.75 percent to 4.00 percent, for the first time since mid-2023, due to stubborn inflation fueled by energy price shocks and rising oil prices, despite political pressure from President Trump to cut rates.
AI-generated summary
Why It Matters
The Federal Reserve has been battling inflation above its 2 percent target for years, compounded by the energy price shock from the Iran war and rising oil prices since May.
The US Federal Reserve is getting serious about the fight against high inflation and is raising the key interest rate - for the first time since mid-2023. The key monetary policy rate was raised by a quarter point to the new range of 3.75 to 4.00 percent.
Many experts had expected this. Inflation, fueled by the energy price shock as a result of the Iran war, has recently been extremely persistent. The Federal Reserve pays particular attention to a measure of inflation that is tailored to consumers' spending habits - known in technical jargon as the PCE index. The inflation rate calculated from this was 3.7 percent in July, as in June.
Further risk of inflation due to high oil prices
The head of the central bank, Kevin Warsh, who has been in office since May, had signaled the central bank's willingness to act if inflation did not subside. Inflation has been above the Federal Reserve's target for years. And recently the price of oil has started to rise again, which is likely to raise the risk of further inflation.
For a long time there were doubts in the financial markets as to whether the central bank would dare to take the step up - also because US President Donald Trump repeatedly put pressure on the independent monetary authorities to lower interest rates in times of high inflation, contrary to conventional wisdom.
Trump brought Warsh into office in May. He had made it clear that he expected the new man to take a looser line than Warsh's predecessor, Jerome Powell.
More information coming soon.
What to Watch
AI outlook — possibilities, not facts
The Federal Reserve will continue to raise interest rates in the next few months if inflation does not decline.
Likely · Within months
Open Questions
- How long will the Federal Reserve maintain current interest rates?
- Will oil prices continue to rise and fuel inflation again?
- What will President Trump's political pressure on the Federal Reserve look like in the coming months?
