The US Federal Reserve (Fed) raised its target range for the key interest rate by 0.25 percentage points to 3.75–4% on Wednesday, September 16. The decision was unanimous and marks the first rate hike since July 2023, meeting market expectations.
The rate increase comes amid criticism of the Fed by US President Donald Trump. On Sunday, September 13, he said that no country should have lower interest rates than the United States. “The US should pay the lowest interest rate in the world,” Trump told reporters during the Irish Open golf tournament.
Trump also claimed that the Fed’s interest rate levels benefit other countries at the expense of the US. Two weeks earlier, he posted a demand on Truth Social to lower rates: “Lower the rate, or I will stop trading with countries with which we have a deficit.”
Inflationary pressure and market expectations
The rate hike occurred less than a week after the US Department of Labor’s Consumer Price Index, a key inflation indicator, showed its largest increase in four months on Friday, September 11. Inflation was 3.4% year‑on‑year in August, and fuel prices remained high. Gasoline accounted for one‑third of the 0.4% monthly price increase.
Market expectations for a rate hike had been building for some time, pushing US Treasury yields higher and strengthening the dollar. On August 28, Fed Chair Kevin Warsh, speaking in Jackson Hole, Wyoming, described high inflation as “alarming” and said the central bank would need to act if US policymakers did not quickly curb price pressures. He signaled the possibility of a rate hike to combat inflation, which materialized on September 16.
According to the CME Group‘s FedWatch tool, the market‑estimated probability of a rate hike to the 3.75–4% range rose from 63% the day after the July Fed meeting to 86%. Previously, the target range was 3.5–3.75%.
Bond market and geopolitical risks
The rate hike also comes amid tensions between the US Department of the Treasury and the Fed. On August 19, the US Department of the Treasury announced it would at least double its buybacks of long‑term government bonds, increasing the amount from $2 billion to at least $4 billion. The program, aimed at improving liquidity in older US government bonds, began on September 9.
Bond yields rise when prices fall. This movement triggered a broader increase in interest rates, affecting borrowing costs—from corporate bonds to mortgages—just months before the US midterm elections in November.
Tensions between Washington and Tehran have also escalated in recent weeks, especially after strikes on oil refineries and vessels linked to both sides. The new clashes have heightened concerns about global oil‑supply disruptions and pushed prices higher. On Wednesday, September 16, the price of a barrel of Brent crude, the global benchmark, rose to $106.83 around 8:00 AM Brazil time.
Source: Folha de S.Paulo
