The Fed Makes Its First Hike Since 2023
The Federal Reserve raised its key interest rate by 25 basis points, or 0.25%, on Wednesday. The Federal Open Market Committee approved the move in a unanimous 12-0 vote. The decision raised the overnight federal funds rate to a target range of 3.75% to 4%. This was the first rate hike since 2023 and the first increase in more than three years. It also arrived just weeks before the midterm elections, adding political timing to an already closely watched economic decision.
Inflation Keeps the Pressure On
Inflation was central to the Fed’s explanation for the move. In its post-meeting statement, the committee said, “Inflation remains elevated,” and said the action would support a timelier return to its 2% goal. It also declared that it would deliver price stability. CNBC described the decision as part of an effort to combat inflation tied to spiraling oil prices and other factors. CNBC also reported that the Fed indicated another rate increase could be coming. That is not exactly a coupon for bargain borrowing. It is a signal that policymakers believe price pressures remain serious enough to keep rates elevated while they pursue the central bank’s 2% target.
Trump Wants Rates at 1% or Less
President Trump has repeatedly pushed in the opposite direction, demanding lower rates. In his response to the decision, Trump said U.S. interest rates should be 1% or less because America is the best credit in the world and is booming with new investment. He also argued that stopping trade with countries that run deficits with the United States, which he said includes most countries, could produce at least $1.5 trillion a year. Trump called the word “deficit” nothing more than a fancy word for “loss.” He has also threatened to halt trade if the Fed did not reduce key rates. His demand was blunt: lower interest rates for the United States, and fast.
Markets Expected the Move
Markets had largely priced in the increase before the vote. CNBC reported that markets had priced in a better-than-90% chance that the FOMC would approve it, although there was chatter about the possibility of multiple dissents. The final vote was unanimous. Fed Chairman Kevin Warsh was scheduled to hold a live news conference at 2:30 p.m. Eastern Time.
With the midterm elections only weeks away, the Fed’s quarter-point move will be scrutinized by markets, borrowers, and political leaders alike.
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