Federal Reserve Raises Rates, First Time Since 2023

Prices in the US have been rising faster than the Fed's 2% target for more than five years, and inflation reached 3.4% in August. A major reason is the war with Iran, which started in February and pushed up the price of oil and gasoline. Diesel reached a record average of $6.31 a gallon. Higher interest rates make borrowing more expensive, which is meant to slow spending. However, Warsh admitted that the Fed cannot control prices such as fuel, and some economists doubt the hike will lower prices at the pump. The decision also went against President Donald Trump, who wanted lower rates and later called the Fed's board "hostile".

Several big banks raised their prime lending rate from 6.75% to 7%, making credit cards and personal loans more expensive. Mortgage rates are not set by the Fed, but they had already risen for four weeks. The average 30-year fixed rate reached 6.95%, the highest since January 2025, and the hike could push it higher. Higher mortgage rates can add hundreds of dollars a month to a borrower's costs, which may keep some buyers out of the housing market. However, people with existing fixed-rate loans will pay the same each month, and savers may earn more. Most Fed officials expect one more rate rise this year.