Federal Reserve raises interest rates for first time since July ۲۰۲۳ – live

Dominic Rushe

Business editor

The ۱۲-۰ decision will be a blow to Donald Trump, who wanted Kevin Warsh to cut rates. The vote means two other Trump Fed appointees – Michelle Bowman and Christopher Waller – agreed that it was time to raise rates, undercutting any potential messaging from the White House that Warsh and co had been pressured into a rate hike by the other members of the Federal Open Market Committee.

The ongoing US-Israel war against Iran has driven up inflation, especially energy prices. Gas prices have remained, on average, $۱ a gallon more expensive compared with a year ago. Diesel fuel, which is used for buses, trains and trucks, recently reached an all-time high of $۶.۳۱.

Concerns about inflation have induced a sell-off in the US bond market, with the yield on the ۱۰-year treasury note hitting a ۱۹-year high earlier this week, despite efforts from the US treasury to calm the market. Typically seen as one of the safest investment vehicles, trouble in the US bond market can lead to higher interest rates for consumer and business loans.

The Fed uses interest rates as a tool to cool price increases by slowing activity. Higher interest rates affect mortgages, car payments, student debt and other types of loans. After inflation reached a generational high of ۹.۱% in June ۲۰۲۲, the Fed increased rates ۱۱ times from ۲۰۲۲ and ۲۰۲۳. Rates were brought up to a target range of ۵.۲۵% to ۵.۵% before the Fed eventually started lowering them in ۲۰۲۴ and ۲۰۲۵.

At the beginning of the year, when the annualised inflation rate was ۱% lower than current levels, a Fed rate hike seemed highly unlikely. A majority of Fed officials were actually predicting a rate cut before the end of the year. But inflation in August remained stubbornly high while unemployment was steady, which furthered the chances of a rate hike.

Higher prices have painted a grim economic outlook as voters prepare to head to the polls in November. Recent data and surveys have shown heightened inflation has wiped out wage gains for Americans and dampened consumer outlook. In August, hourly earnings for employees decreased by ۰.۱% year-over-year after accounting for inflation and fell by ۰.۳% from the month prior. Consumer sentiment has also rapidly declined, according to a monthly survey from the University of Michigan, while expectations for more inflation have increased.

Candidates on both sides of the political aisle have sought to make cost-of-living concerns and the economy a forefront of their campaigns, but voters are split on which party has the greatest advantage on this issue, according to recent Pew Research Center data.

Meanwhile, Donald Trump has implored Republican voters to pretend as if they are voting for him on their midterm ballot and promised every American a $۵,۰۰۰ “Trump dividend” if Republicans retain control of Congress. Critics have called the move akin to bribery and warned of the financial implications, especially after the US government debt reached a record-high $۴۰tn last month.

Here’s Gaya’s report:

We’ve yet to hear from the White House and Donald Trump hasn’t been active on his Truth Social platform so far today, but we’ll no doubt get his reaction to the news soon.

The rate increase is a turnaround for Fed chair Kevin Warsh – who we’ll hear from shortly – and sets him up for a potential showdown with Donald Trump, who nominated him for the job.

Warsh had often suggested last year when under consideration by the US president that the Fed could reduce its key rate, echoing the president’s call for lower borrowing costs.

But Trump’s war on Iran has evidently changed all that, and Warsh has emphasised several times since taking over the role in May that he was committed to the Fed’s independence from political pressures.

The decision was unanimous, with the vote ۱۲ – ۰.

In its press release, the committee said:

Economic activity is expanding at a solid pace. While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient. Productivity growth is strong, and capital investment is robust. Job gains have kept pace with the workforce, and the unemployment rate has changed little.

Inflation remains elevated. Today’s policy action will support a timelier return to the Committee’s ۲ percent goal. The Committee will deliver price stability.

Fed raises interest rates for first time since July ۲۰۲۳

Dominic Rushe

Business editor

As expected, the committee said it has “decided to raise the target range for the federal funds rate by ۱/۴ percentage point to ۳-۳/۴ to ۴ percent, in support of the Federal Reserve’s dual mandate. The committee is continuing its policy of maintaining ample reserves in the banking system.”

According to a Duke University survey of ۳۲ former Fed governors, regional presidents and staffers, ۲۹ endorsed a rate hike, two didn’t respond and one said the Fed should hold rates steady.

“The Fed and new chair’s credibility is on the line,” one former official said.

Another participant said:

I am no longer confident that PCE inflation will return to ۲% in the next year or two without the Fed raising interest rates.

Above all, the upside risks to the inflation outlook have worsened since July: energy prices have not reversed as expected, tariff pass-through continues, and the AI build-out is adding to price pressures.

Another person said:

Earlier in the year, it appeared that there was some hope that inflation would decline closer to its ۲ percent target within a year or two. That now appears less likely.

While some of the effects of tariffs and war-induced shortages may manifest as price-level effects, with temporary inflation consequences, it’s hard to have much confidence in that. Thus, a more sustained increase in inflation is quite possible.

Clearly, none of those who responded to the poll backed a rate cut, which Donald Trump has been pushing for.

However, they also didn’t think dramatically high rate increases would be necessary to tackle the inflation challenge.

Dominic Rushe

Business editor

The Fed has two mandates: price stability and supporting the job market. The jobs market has remained robust but spikes in energy prices have put the central bank under pressure to raise rates in order to bring down inflation. Americans have spent over $۱۰۰bn extra on gasoline and diesel during Trump’s war on Iran than they would have had there been no war, according to estimates by the Climate Solutions Lab at Brown University.

Good afternoon. The US Federal Reserve is widely expected to raise interest rates for the first time since ۲۰۲۳ amid persistently high inflation.

After deciding to hold rates steady at its last meeting in July, the Fed is now anticipated to raise interest rates by a quarter of a percentage point (۲۵ basis points), bringing the benchmark federal funds rate to a new target range of ۳.۷۵% to ۴%.

The central bank’s last increase effectively bookended its Covid pandemic response, but inflation has remained above its ۲% target for more than five years now and has been further exacerbated by Donald Trump’s disastrous and ongoing war against Iran.

The US president has repeatedly demanded that rates be cut, creating intense pressure on his handpicked chair, Kevin Warsh. On Sunday, days before the Fed’s September meeting was due to kick off, Trump said the United States should have “the lowest interest rate in the world” regardless of what the data indicates about inflation or the economy.

If he decides to go ahead with the hike, Warsh will no doubt infuriate the president, who regularly attacked his predecessor Jerome Powell. Trump has so far been more supportive of Warsh since he took charge earlier this year, but he’s become more vocal recently.

“LOWER THE RATE OR I’LL STOP TRADING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT,” the president posted on ​social media two weeks ago.

The Fed’s decision comes just weeks out from November’s crucial US midterm elections, which will determine whether or not Trump’s Republican party retains control of Congress, with affordability and the cost-of-living crisis the major issue for voters.

The Fed is due to release its decision at ۲pm ET, and Warsh will hold a press conference at ۲.۳۰. We’ll bring you all the latest here, so stay tuned.