US Fed raises interest rates to tackle inflation

Following its latest meeting, the Federal Open Market Committee (FOMC) voted unanimously, 12-0, to increase the federal funds target range to 3.75%-4%.

“The Committee decided to raise the target range for the federal funds rate by 1/4 percentage point to 3-3/4 to 4 %, in support of the Federal Reserve's dual mandate,” the Fed said in its statement.

The central bank noted that economic activity in the United States was expanding at a solid pace, while domestic spending remained resilient despite elevated uncertainty linked partly to geopolitical developments.

“Inflation remains elevated. Today's policy action will support a timelier return to the Committee's 2 % goal,” the FOMC said.

The decision comes as higher energy costs add to inflationary pressures. Annual inflation reached 3.4% in August, according to the U.S. Labor Department, while gasoline prices accounted for more than a third of the monthly increase in consumer prices.

Diesel prices have also reached record levels, averaging $6.31 per gallon on Wednesday, according to AAA. Higher transportation costs could affect prices of a wide range of goods.

Fed projections released after the meeting indicate that policymakers expect one additional quarter-point rate increase this year, while forecasting no rate hikes in 2027.

Meanwhile, the yield on 10-year U.S. Treasury bonds has risen above 5%, increasing borrowing costs for households and businesses, including mortgage and auto loans.

Earlier, Qazinform News Agency reported that U.S. President Donald Trump on Wednesday threatened to impose heavy tariffs on the European Union or halt trade with the bloc if he considered its proposal to make Canada an associate member a hostile move.