US Federal Reserve Raises Interest Rates for First Time in More Than Three Years

US Federal Reserve has lifted interest rates for the first time in more than three years, amid continued high inflation, with an additional impact on the country's economy due to increased oil prices. 

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The Fed has lifted its benchmark rate by 25 basis points, increasing the target range to 3.75%–4%. It should be noted that this move came amid the approaching US midterm elections and despite continuous calls from President Donald Trump to cut interest rates. 

Inflation has become more obvious in recent weeks. Prices of consumers rose 0.4% in August – the highest monthly increase in four months, with annual inflation remaining at 3.4% – the same figure reported in July. Target inflation level in the United States is 2%. 

Increased oil prices have added more pressure to the situation. On Tuesday, Brent crude was traded at around $109 a barrel amid escalating tensions between US, Israel and Iran. 

That rise has already filtered through to American motorists. The average price of petrol reached $4.36 a gallon, 14 cents more than a week earlier and up from $4.06 a month ago. Diesel stood at $6.31 a gallon, its highest recorded average and roughly twice its level a year earlier. 

Financial markets had increasingly prepared for Wednesday’s decision. CME FedWatch put the probability of a quarter-point increase at 92.3%, a sharp change from the 40% probability recorded just a week earlier. 

Pressure was also visible in the bond market. The yield on the benchmark 10-year US Treasury crossed 5% on Tuesday and touched 5.02%, its highest level in 19 years. The 10-year yield is closely tied to borrowing costs across the economy, including mortgages and car loans. 

The Federal Reserve’s latest projections suggest Wednesday’s move may not be the final increase of 2026. Officials expect one more rate hike this year, followed by rates remaining unchanged through next year. 

The decision also puts monetary policy at odds with the direction sought by Trump. Hours after the announcement, the president renewed his call for substantially lower interest rates. He later said he continued to have confidence in Federal Reserve Chair Kevin Warsh, while maintaining that current rates were too high. 

For the Fed, the immediate challenge remains inflation. Economic activity and domestic spending have remained resilient, but price pressures now accompanied by sharply higher energy costs have pushed the central bank back towards tighter monetary policy after more than three years without an interest-rate increase.