Federal Reserve raises interest rates for the 1st time since 2023
By Max Zahn
The Federal Reserve raised interest rates on Wednesday in an effort to battle back a months-long surge of inflation set off by the Iran war. The move marks the central bank's first rate increase since July 2023.
The central bank hiked its benchmark rate a quarter of a percentage point, putting interest rates at a level between 3.75% and 4%.
That figure marks a significant drop from a recent peak attained in 2023, but borrowing costs remain well above a 0% rate established at the outset of the COVID-19 pandemic.
A 12-member policymaking board voted unanimously in favor of the rate increase.
The move appears aimed at containing a recent bout of price increases. Global oil prices are hovering near a four-month high and the average price for a gallon of gasoline tops $4.30, according to AAA.
The U.S. economy has shown signs of additional strain in recent days, including a bond selloff that is pushing up borrowing costs for credit cards and mortgages.
The price woes previously divided central bankers eager to contain inflation but reluctant to cool off the economy and weaken the labor market.
The Fed opted to hold interest rates steady at its most recent meeting in July. Three of the 12 members on the Fed's policymaking board, however, voted in favor of a rate hike, marking the largest number of dissenters casting ballots in the same direction in a decade.
Federal Reserve Chair Kevin Warsh, who took the helm of the central bank in May, has vowed to cool off persistently elevated price increases.
"The Fed's predominant focus right now should be on prices," Warsh said in remarks last month at the Fed's annual summer gathering in Jackson Hole, Wyoming.
Prices rose 3.4% in August compared to a year earlier, maintaining the same level from the prior month, federal government data last week showed.
Inflation stands more than a percentage point higher than the Federal Reserve's target rate of 2%.
Despite a stubborn bout of inflation, the economy remains fairly robust by some measures.
A blockbuster jobs report earlier this month showed employers added 162,000 workers in August, demonstrating continued resilience for the nation's labor market. The economy grew over three months ending in June, defying fear of a downturn triggered by the Iran war.
Fighting in the Middle East kept global crude prices above $105 a barrel as of Wednesday, which amounted to a rise of about 50% since the Iran war broke out in late February.
The average price of a gallon of gas in the U.S. stands at $4.36, putting it more than $1.30 higher than before the war, AAA data showed.
Record-high diesel prices have raised transport costs for many everyday products, including groceries, clothes and furniture.
The war in Iran, which began with a large-scale U.S.-Israeli attack in the winter, prompted Iran's near-closure of the Strait of Hormuz, which facilitates one-fifth of global crude supply. Saudi Arabia over the weekend shut down a key pipeline bypassing the strait, which further constrained oil delivery and put upward pressure on prices.
