The Federal Reserve raised rates by 0.25 percent last week in an attempt to slow inflation. This is the first time since 2023 that the benchmark rate has gone up. The federal funds rate is now in the range of 3.75 to 4.0 percent. The rate hike was unanimous, and the committee signaled one additional interest rate hike is likely to happen before year end.
With the war in Iran continuing to drive up prices, the FOMC had little choice to act. Fed Chair Kevin Warsh stated inflation has been running too high for too long, and the move will “support a timelier return to the Committee’s 2 percent goal.”
Energy prices have helped push inflation up to 3.4 percent, well above the 2 percent target. After the announcement, long term bond yields eased slightly, but they remain at their highest levels in nearly 10 years. Warsh explained bond yields are up because of economic strength, the war in the Middle East restricting energy supplies and competition for capital driven by AI companies.