The US Federal Reserve raised interest rates by 25 basis points to 4%, in line with expectations, in the first policy meeting under command of new central bank’s Chairman Kevin Warsh.
Wednesday’s action marks the first policy tightening since 2023, in the central bank’s response to persistently elevated inflation.
The vote among Fed policymakers was unanimous this time (in comparison to July meeting 9-3 vote) that markets saw as hawkish shift, although still looking for clearer signals about the central bank’s action in coming months, despite growing expectations for one more hike until the end of the year.
Wednesday’s hike confirmed the sharp turn in Fed’s policy direction, after predominantly dovish stance at the beginning of the year and advocating for rate cuts, through neutral view during mid-2026 and start of rate hike cycle after the economy started to face full negative impact from the US-Iran war.
Fed’s decision was justified by the latest economic data which showed inflation in upward trajectory (PCE – Fed’s closely watched inflation gauge rose to 3.3%), but also resilient labor sector (significant growth of the labor force and minimal change in unemployment) as well as still solid economic growth that contributed to signals from Fed Warsh’s hawkish remarks in his speech at Jackson Hole symposium last month.
Markets broadly see the latest Fed’s action as a beginning of fresh tightening cycle, particularly due to the fact that underlying inflation uptrend remains strong, however, will maintain cautious approach and seek for more evidence from coming economic data.
