Fed Raises Rates Amid Inflation, War in Iran, and Political Pressure

On Wednesday the Federal Open Market Committee (FOMC) voted unanimously 12-0 to lift the federal-funds target range by a quarter-point to 3.75 %–4 %. The move marks the first rate increase since the July 2023 hike and comes as the Fed seeks to curb inflation that remains above its 2 % goal. The decision was announced at 2 p.m. Eastern, followed by a news conference with Fed Chair Kevin M. Warsh.

Federal Reserve implements quarter-point rate hike

Inflation surged to a 40-year high of 9.1 % in June 2022, prompting aggressive hikes that peaked at 5.25 %–5.5 % in 2023. After inflation fell below 3 % in early 2025, the Fed began cutting rates in late 2024. A renewed shock to oil markets—driven by the U.S.–Israel war with Iran and restrictions on shipping in the Strait of Hormuz—has pushed gasoline and diesel prices higher, lifting annual CPI inflation to 3.4 % in August and the PCE price index to 4.1 % in May. The conflict, now in its 200-day span, adds upward pressure to price growth and complicates the Fed’s path back to 2 % inflation.

The Hill

• Rate target: 3.75 %–4 % (unanimous vote).

Fed Raises Rates a Quarter Point, First Increase Since 2023

• Inflation metrics: August CPI 3.4 % (Labor Department); May PCE 4.1 % (BEA).

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• Market expectations: CME FedWatch showed a 92 % probability of a quarter-point hike before the announcement.

Dow Plunges 631 Points After Fed Raises Rates by a Quarter Point; Market Bets on Another Hike in October — BigGo Finance

• Bond yields: 10-year Treasury yield topped 5 % in the week ending September 14, the highest since 2007.

Dow Plunges 631 Points After Fed Raises Rates by a Quarter Point; Market Bets on Another Hike in October — BigGo Finance

• Projected inflation: Median FOMC projection for 2026 rose to 3.7 %, up from 3.6 % in June.

The Hill

Chair Warsh reiterated that “inflation remains too high” and that the Fed must deliver “price stability.” He framed the hike as a response to “elevated energy costs” and warned that “the responsibility for 65 months of sustained, elevated inflation sits squarely with the central bank.” Warsh also stressed the Fed’s independence, describing it as “a two-way street” when discussing trade- and fiscal-policy officials.

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• “We should be paying the lower interest rate in the world, regardless of [the Fed’s] formulas,” — President Trump

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• “In stable prices, an environment where inflation is running consistent with our 2 percent objective offers good news because that way, when they get their wages, they can put their head above water and deliver real take-home pay increases,” — Kevin M. Warsh

The Hill

• “The responsibility for 65 months of sustained, elevated inflation sits squarely with the central bank,” — Fed Chairman Kevin Warsh

NPR

The updated Summary of Economic Projections shows 16 of 18 policymakers expecting at least one more quarter-point hike before year-end, with two officials projecting rates would hold steady. Warsh again declined to offer a personal forecast, deferring to the committee’s collective outlook. The next FOMC meeting is slated for late October, and market pricing for an additional hike rose to roughly 53 % after the announcement.

The Hill

The Congressional Budget Office has projected that the Iran-related conflict could add 0.5 percentage points to the PCE inflation rate in the first quarter of 2027. If inflation remains above target, the Fed’s forward path is likely to stay on a tightening trajectory, with the median projection for the policy rate reaching 4.00 %–4.25 % by the end of 2026.

The Hill