US Fed raises interest rates as inflation weighs on economy

The Federal Reserve on Wednesday raised its policy rate by a quarter percentage point, lifting the target range to 3.75–4.00 percent. The central bank said the step is intended to help bring inflation back toward its 2 percent objective after prices remained elevated. The action is the first rate increase in over three years and comes amid heightened geopolitical tensions and a resilient pace of domestic spending. Rising fuel costs tied to the US-Iran war have been a key driver of inflation, the Fed and market observers say. Consumer prices rose 0.4 percent in August — the largest monthly increase in four months — and were up 3.4 percent year-on-year, matching July’s annual pace. Benchmark Brent crude was trading near $109 per barrel, and petrol and diesel averages have climbed sharply: regular petrol averaged $4.36 a gallon (up 14 cents in a week and from $4.06 a month earlier), while diesel reached an average of $6.31 a gallon, roughly double its level a year ago. Financial markets had rapidly shifted to expect a rate hike in the days before the announcement. The CME FedWatch tool put the odds of the Fed moving to a 3.75–4.00 percent range at about 92.3 percent on Wednesday, a major increase from roughly 40 percent a week earlier. Treasury yields have also risen, with the 10-year benchmark briefly topping 5 percent to reach 5.02 percent — its highest level in 19 years — lifting borrowing costs tied to mortgages and other loans. Economists and commentators say the policy decision reflects a delicate balance: unemployment remains low and domestic demand has been resilient, yet higher energy prices and persistent inflationary pressure pushed policymakers toward tightening. Fed officials signaled they expect one more increase before year-end as they aim to restore price stability, while political leaders have continued public calls for lower rates.