US Fed raises rates for first time since 2023 as inflation stays elevated

The US Federal Reserve raised its benchmark interest rate by a quarter percentage point on Wednesday to 3.75 per cent -4 per cent, its first rate increase since July 2023, as it seeks to curb still-elevated inflation despite resilient economic activity.

The Federal Open Market Committee approved the move unanimously in a 12-0 vote, saying the action would support its dual mandate and help bring inflation back to its 2 per cent target more quickly.

The increase marks a reversal from the rate-cutting cycle that followed the Fed’s final hike in July 2023. The central bank’s target range had subsequently fallen to 3.5 per cent -3.75 per cent by the end of 2025 before Wednesday’s increase.

The Fed said economic activity was expanding at a solid pace, with resilient domestic spending, strong productivity growth, and robust capital investment.

“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.” Fed said.

The Fed also said it would continue its policy of maintaining ample reserves in the banking system.

“Inflation remains elevated,” the Fed said, adding that the latest policy action would support a timelier return to its 2 per cent inflation goal.