Israeli Shekel Strengthens After Fed Rate Hike, Analysts Weigh Impact

The Israeli shekel saw gains against major currencies on Thursday, following a quarter-point interest rate hike by the U.S. Federal Reserve the previous day. The dollar weakened by 0.2% against the shekel, trading at NIS 3.041, while the euro and pound also saw slight declines against the Israeli currency. This local currency movement occurred amidst minor fluctuations in global foreign exchange markets.

The Federal Reserve raised its benchmark interest rate by 25 basis points to a range of 3.75% to 4%, marking the first increase since July 2023 and a significant policy shift under new Chair Kevin Warsh. The decision by the Federal Open Market Committee (FOMC) was unanimous, with officials citing persistent high inflation and the need to return to the 2% target.

In a press conference, Chair Warsh indicated that summer inflation data did not show significant improvements in underlying trends. He acknowledged that the rate hike would not directly lower oil prices, which are influenced by geopolitical supply shocks, but stated the Fed could prevent energy price increases from spreading throughout the economy.

Dr. Ilan Gildin, a partner at Keren Family Office, described the rate hike as a belated correction to earlier rate cuts in late 2025, which he deemed unnecessary and kept real interest rates too low amid inflation. Gildin argued that market signals, such as 10-year U.S. Treasury yields exceeding 5% and rising mortgage rates, had indicated for months that the Fed's previous accommodative stance was flawed. He believes the current hike is an admission by the central bank that it must reverse its easing measures to restore credibility.

Gildin also noted the Fed's limited ability to control energy price inflation due to external factors. However, he pointed to strong U.S. economic growth, fueled by government deficits and AI-related capital investment, as a key factor. He concluded that the rate hike is perhaps the Fed's only remaining tool to cool the economy and offset external inflationary pressures, suggesting the era of low interest rates has ended and the fight against sticky inflation must begin.