Key facts
- The Federal Reserve raised its benchmark interest rate by 0.25 percentage point on Wednesday.
- This is the first rate hike by the Fed since July 2023.
- The new target range for the federal funds rate is 3.75–4.00 percent.
- The decision was made by a 12-0 vote.
- The Fed's median economic projection indicates the federal funds rate could reach 4.1 percent by the end of 2026.
- Core consumer price index data showed a 0.3 percent monthly gain last month.
The U.S. Federal Reserve increased its benchmark interest rate by a quarter percentage point to the 3.75–4.00 percent range on Wednesday, marking the first hike since July 2023. The decision, made by a unanimous 12-0 vote of the Federal Open Market Committee (FOMC), signals the central bank's intent to combat persistent inflation and high oil prices. This move widens the interest rate gap between South Korea and the U.S. to up to 1 percentage point. The FOMC's updated median economic projection suggests the federal funds rate could rise to 4.1 percent by the end of 2026, an increase from the previous June forecast of 3.8 percent, indicating a potential for another rate hike later this year. Recent data from the Labor Department's Bureau of Labor Statistics showed that the core consumer price index, excluding volatile food and energy costs, rose by 0.3 percent last month, slightly exceeding forecasts. U.S. President Donald Trump has expressed opposition to the Fed's rate hikes, threatening trade restrictions against countries with trade surpluses unless borrowing costs are reduced, particularly ahead of the November midterm elections. The Fed also revised its economic growth projections, with U.S. gross domestic product now expected to grow by 2.3 percent this year and 2.4 percent next year. Personal Consumption Expenditures (PCE) inflation is projected to reach 3.7 percent by year-end, up from 3.6 percent in June, and remain at 2.3 percent next year.