US Federal Reserve Raises Interest Rates to 4% Amid Inflation Fears

The U.S. Federal Reserve announced its first interest rate hike since 2023, raising the benchmark rate by 0.25 percentage points to 4%. The decision was made unanimously by the 12 committee members, driven by rising inflation since the U.S. and Israel's war with Iran and concerns about further increases due to energy price surges and geopolitical instability.

Annual inflation stood at 3.4% in August, a significant jump from the 2.4% to 2.7% range observed between November and February, prior to the conflict. The committee anticipates inflation could reach 3.7% by 2026, suggesting at least one more rate hike may be necessary before the year's end.

This marks the second rate decision under new Federal Reserve Chair Kevin Warsh, who again acted contrary to the views of President Trump, his appointer. Trump has advocated for lower interest rates and previously criticized the Fed under Warsh's predecessor, Jerome Powell.

Alongside the rate decision, committee members released economic projections. They forecast the current unemployment rate of 4.1% will persist through 2026, with annual growth estimated at 2.3%. These projections are more optimistic than those released in June, indicating the committee's belief that economic activity has accelerated. This optimism is tempered by growing concerns over inflation, exacerbated by rising energy costs and uncertainty surrounding the ongoing war.