A 25 bps hike: US Federal Reserve raises interest rates for first time since 2023
The move marks a shift for the US central bank, which had kept rates unchanged since January as it waited to assess the impact of higher energy prices, tariffs and broader price pressures on the economy.
Inflation forces Fed action
The Fed’s decision comes after consumer inflation stayed at 3.4% in August, unchanged from the previous month but still much higher than the central bank’s 2% target. Inflation pressures have been supported by higher energy prices following renewed tensions in the Middle East, the impact of tariff policies and strong demand linked to the artificial intelligence boom.
The central bank had earlier chosen to wait before changing rates, but the latest inflation data strengthened the case for action. At the Fed’s July meeting, a quarter of voting members had dissented from the decision to hold rates steady and had called for an immediate hike.
Warsh faces first big credibility test
The rate hike is also a major test for Fed Chair Kevin Warsh, who took over the central bank earlier this year. Warsh had avoided giving clear guidance on the likely path of rates, but he had signalled that the Fed would act if inflation failed to slow meaningfully.
The decision could put him at odds with US President Donald Trump, who had picked Warsh with the expectation that he would support lower interest rates to boost economic activity.Trump has repeatedly pushed the Fed to cut rates, arguing that lower borrowing costs would help growth. But inflation has left the central bank with less room to ease policy.
What the hike means for India
Analysts say that a hike could strengthen the Fed Chair’s inflation-fighting credibility, and the Fed may need to signal a limited further hiking cycle to avoid excessive tightening of financial conditions.
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