Key facts
- The Federal Reserve raised interest rates by a quarter point to a range of 3.75%-4%.
- This is the first rate increase in more than three years.
- Fed officials penciled in another rate hike by year's end.
- Inflation has picked up since early in the year due to the war with Iran.
- Officials are worried about the potential inflationary impact of the massive AI buildout.
The Federal Reserve raised its benchmark lending rate by a quarter point to a range of 3.75%-4% on Wednesday, its first increase in over three years, in an effort to combat rising inflation. Officials indicated that further rate hikes may be necessary by the end of the year, aligning with Wall Street's forecasts. The decision was unanimous among Fed policymakers, reflecting concerns over inflation that has been elevated for the past five years, partly due to the ongoing war with Iran and the potential inflationary impact of significant AI buildouts. The central bank's preferred inflation gauge for August is expected to show an increase. The Fed's move comes as the labor market remains resilient, allowing the central bank to prioritize inflation control. This policy action marks a significant move under Chairman Kevin Warsh, who has emphasized the Fed's independence, potentially putting him at odds with President Donald Trump, who has publicly pressured the central bank for lower rates. National Economic Council Director Kevin Hassett stated that the president would accept the Fed's decision.