Beautiful Virgin Islands

Monday, Sep 01, 2025

US makes biggest interest rate rise in 22 years

US makes biggest interest rate rise in 22 years

The US central bank has announced its biggest interest rate increase in more than two decades as it toughens its fight against fast rising prices.

The Federal Reserve said it was lifting its benchmark interest rate by half a percentage point, to a range of 0.75% to 1% after a smaller rise in March.

With US inflation at a 40-year high, further hikes are expected.

The push marks the latest effort to contain spiking costs being felt by households around the world.

India's central bank on Wednesday announced a surprise increase to its benchmark rate, while Australia's central bank recently enacted its first interest rate hike in more than a decade.

The Bank of England is also widely expected to raise rates on Thursday, which would be the fourth increase since December.

"Inflation is much too high and we understand the hardship it is causing," Federal Reserve chairman Jerome Powell said in a press conference in Washington on Wednesday.

"We are moving expeditiously to bring it back down."

By raising rates, banks will make it more expensive for people, businesses and governments to borrow.

They expect that to cool demand for goods and services, helping to ease price inflation.

But their actions also risk triggering a sharp economic slowdown, especially as new challenges emerge, such as the war in Ukraine and recent Covid shutdowns in China.

"It's a narrow path they have to walk," said economist Donald Kohn, who previously served on the Fed's rate-setting committee. "It's going to be a very difficult task."


'Behind the curve'


Inflation in the US hit 8.5% in March, the sharpest annual rate since 1981, driven by accelerating costs for food and energy.

That is well above the bank's 2% target and has become a growing political issue for US President Joe Biden.

Federal Reserve chairman Jerome Powell initially predicted inflation would be "transitory"


Many economists say the Fed has been slow to respond to the problem, which has been fuelled by a mix of factors, including Covid-related supply shortages, a shock to energy markets from the war in Ukraine, and in the US, massive government spending - including direct cheques to households - to support the economy after the pandemic hit.

"They are well behind the curve. I think most central banks are," said Thomas Hoenig, senior fellow at George Mason University's Mercatus Center, who spent nearly 40 years at the Fed.

"But if they try to correct that error with another error - that is to shock the economies with very large interest rate increases - I think they'll pay a pretty big price in terms of a probable recession from that."

The rate increase announced on Wednesday was an unanimous decision. It will push what the Fed charges banks to borrow to a range of 0.75% to 1%, with the higher costs rippling out to consumers in the form of more expensive mortgages, credit cards and other loans.

In addition, the bank detailed plans to remove economic support by winding down its balance sheet, which swelled during the pandemic as it purchased assets, including US government debt and mortgage-backed securities, to boost the economy.

Starting in June, the bank said it would reduce its holdings by $47.5bn per month, increasing to $95bn in September.


'I had to buy quickly'
Mia Navarro


Some people, like first-time homebuyer Mia Navarro, are already feeling the effects of the changes. She sped up her hunt for a one-bedroom apartment in Washington, DC, as she started to see higher mortgage costs limit what she could afford.

"When I originally started my search, I definitely had a bigger budget, based off of what the rates were at the time," said the 25-year-old, who this month bought a one-bedroom apartment for $325,000, with a mortgage rate below 5%.

"I immediately decided that I needed to move quickly...and get in there before they hiked too much out of my range and something that I can still afford."

The actions by the bank in charge of the world's largest economy are expected to have widespread repercussions, as many countries and commodity markets rely on the dollar. On Wednesday Gulf states, whose currencies are tied to the dollar, responded to the Fed with interest rate rises of their own.

Mr Powell said further rate hikes were planned. He added that officials agreed that boosting rates by half a percentage point "should be on the table" in the future, but moving more aggressively was not under active consideration.

US stock markets soared following the press conference, which played out largely as investors had expected.

Mr Powell said he was confident the US economy was strong enough to handle the bank's more aggressive stance, pointing to the tight job market, in which openings outnumber available workers by nearly two to one.

But he acknowledged that the supply shocks from the war in Ukraine and Covid lockdowns in China have presented officials with a tough task - and might force them to move more aggressively to curb demand than they would otherwise.

"We can't really affect oil prices or food and commodity prices - things like that," he said.

But, he added, "We have to ensure that inflation expectations remain anchored - that's part of our job too."

"It puts any central bank in a very difficult situation."


Managing soaring inflation is proving a tall order. Central banks around the world are raising interest rates to lower prices.

And the latest aggressive move by the world's most powerful central bank, the US Federal Reserve is one that will reverberate around the globe.

Not only will it raise borrowing costs for Americans on everything from credit cards to mortgages, it will also push up the value of the US dollar. In turn, that will push up commodity prices and make it more expensive for emerging economies that borrow in dollars.

It is also being felt in financial markets, where asset prices were buoyed by the unprecedented levels of stimulus showered on the economy during the pandemic. As that support is removed, you have already seen more turbulence.

But the Fed has little choice. Inflation has consistently burned hotter than expected. The question is, can it successfully tame inflation without a recession.

As economists often like to say: "Expansions don't die of old age".

Newsletter

Related Articles

Beautiful Virgin Islands
0:00
0:00
Close
Chinese and Indian Leaders Pursue Amity Amid Global Shifts
European Union Plans for Ukraine Deployment
ECB Warns Against Inflation Complacency
Concerns Over North Cyprus Casino Development
Shipping Companies Look Beyond Chinese Finance
Rural Exodus Fueling European Wildfires
China Hosts Major Security Meeting
Chinese Police Successfully Recover Family's Savings from Livestream Purchases
Germany Marks a Decade Since Migrant Wave with Divisions, Success Stories, and Political Shifts
Liverpool Defeat Arsenal 1–0 with Szoboszlai Free-Kick to Stay Top of Premier League
Prince Harry and King Charles to Meet in First Reunion After 20 Months
Chinese Stock Market Rally Fueled by Domestic Investors
Israeli Airstrike in Yemen Kills Houthi Prime Minister
Ukrainian Nationalist Politician Andriy Parubiy Assassinated in Lviv
Corporate America Cuts Middle Management as Bosses Take On Triple the Workload
Parents Sue OpenAI After Teen’s Death, Alleging ChatGPT Encouraged Suicide
Amazon Faces Lawsuit Over 'Buy' Label on Digital Streaming Content
Federal Reserve Independence Questioned Amid Trump’s Push to Reshape Central Bank
British Politics Faces Tumultuous Autumn After Summer of Rebellions and Rising Farage Momentum
US Appeals Court Rules Against Most Trump-Era Tariffs
UK Sought Broad Access to Apple Users’ Data, Court Filing Reveals
UK Bank Shares Dive Over Potential Tax on Sector
Germany’s Auto Industry Sheds 51,500 Jobs in First Half of 2025 Amid Deepening Crisis
Bruce Willis Relocated Due to Advanced Dementia
French and Korean Nuclear Majors Clash As EU Launches Foreign Subsidy Probe
EU Stands Firm on Digital Rules as Trump Warns of Retaliation
Getting Ready for the 3rd Time in Its History, Germany Approves Voluntary Military Service for Teenagers
Argentine President Javier Milei Evacuated After Stones Thrown During Campaign Event
Denmark Confronts U.S. Diplomat Over Covert Trump-Linked Influence in Greenland
Starmer Should Back Away from ECHR, Says Jack Straw
Trump Demands RICO Charges Against George Soros and Son for Funding Violent Protests
Taylor Swift Announces Engagement to NFL Star Travis Kelce
France May Need IMF Bailout, Warns Finance Minister
Chinese AI Chipmaker Cambricon Posts Record Profit as Beijing Pushes Pivot from Nvidia
After the Shock of Defeat, Iranians Yearn for Change
Ukraine Finally Allows Young Men Aged Eighteen to Twenty-Two to Leave the Country
The Porn Remains, Privacy Disappears: How Britain Broke the Internet in Ten Days
YouTube Altered Content by Artificial Intelligence – Without Permission
Welcome to The Definition of Insanity: Germany Edition
Just a reminder, this is Michael Jackson's daughter, Paris.
Spotify’s Strange Move: The Feature Nobody Asked For – Returns
Manhunt in Australia: Armed Anti-Government Suspect Kills Police Officers Sent to Arrest Him
China Launches World’s Most Powerful Neutrino Detector
How Beijing-Linked Networks Shape Elections in New York City
Ukrainian Refugee Iryna Zarutska Fled War To US, Stabbed To Death
Elon Musk Sues Apple and OpenAI Over Alleged App Store Monopoly
2 Australian Police Shot Dead In Encounter In Rural Victoria State
Vietnam Evacuates Hundreds of Thousands as Typhoon Kajiki Strikes; China’s Sanya Shuts Down
UK Government Delays Decision on China’s Proposed London Embassy Amid Concerns Over Redacted Plans
A 150-Year Tradition to Be Abolished? Uproar Over the Popular Central Park Attraction
×