London Daily

Focus on the big picture.
Monday, Oct 06, 2025

US Federal Reserve raises interest rates for first time since 2018

US Federal Reserve raises interest rates for first time since 2018

Fed raises rates by a quarter percentage point from near zero as central bank struggles with inflation, the war in Ukraine and Covid
The Federal Reserve has raised interest rates for the first time since 2018, as the central bank struggles with soaring US inflation, the impact of the war in Ukraine and the coronavirus crisis.

The Fed raised rates by a quarter percentage point from near zero, in what is expected to be the first in a series of raises in the coming months.

In a statement, the Fed said economic indicators and employment figures had “continued to strengthen”, but noted that inflation remained elevated and the invasion of Ukraine was not only “causing tremendous human and economic hardship” but was “likely to create additional upward pressure on inflation and weigh on economic activity” in the US.

The Fed has a dual mandate – to maximize employment and keep prices under control. The job market and the wider economy have made an impressive recovery from the lows of the pandemic, thanks in part to Fed rate cuts and a massive stimulus program, but prices have increased by 7.9% in the year through February – the highest rate of inflation in 40 years.

Supply chain issues have led to sharp increases in a variety of areas including used cars, food and utilities that are causing particular hardship for lower-income Americans.

The Fed initially dismissed rising prices as “transitory”, but has since acknowledged high inflation is likely to be around for some time. Supply problems that appeared to be normalizing earlier this year are also now feeling the impact of the war in Ukraine and face further setbacks as China imposes new lockdowns to curb new coronavirus outbreaks.

At a press conference, Fed chair Jerome Powell said the bank was “acutely aware” that it must tackle inflation. “I’m old enough to remember what very high inflation was like,” he said. “We’re strongly committed as a committee to not allowing this higher inflation to become entrenched.”

The Fed is projecting six more rate rises this year. One Fed committee member, the St Louis Fed president James Bullard, pushed for a larger half-percentage-point increase this month. “If we conclude it will be appropriate to raise interest rates more quickly, then we’ll do so,” said Powell.

Raising rates too quickly threatens to push the US into recession. This week, CNBC’s Fed Survey – which gauges the opinions of fund managers, strategists and economists – put the probability of recession in the US at 33% in the next 12 months, up 10 percentage points from the 1 February survey. The latest survey put the chance of a recession in Europe at 50%.

With inflation running at close to four times the Fed’s target rate of 2%, Powell has made clear that the central bank will raise rates in an attempt to curb rising prices. But some economists question how much impact the Fed can have on such a complex issue.

JW Mason, associate professor of economics at John Jay College, said a quarter-point rate rise was unlikely to have much impact on inflation or the wider economy. “It is a strange feature of the way we think and talk about economics today that we have given this wildly outsized importance to this one policy tool used by this one part of government,” he said.

Mason said he expected inflation would ease without the Fed’s intervention over the next year – albeit “less than we hoped it would”. He pointed out that car prices – until recently the largest source of inflation – were already falling. While he said a series of small rate rises were not likely to have a major impact overall “a sufficiently large rise in interest rates will have a substantial negative effect on real economic activity”.

Mason said other branches of government were better able to deal with price issues in the broader economy, such as soaring rents and home prices or gas and utility bills, and that tools such as price caps or stimulus cheques could be used to alleviate hardship.

Powell said he expected US inflation to ease later this year, with the Fed predicting it will end the year at 4.1%. But he reiterated that the war in Ukraine was likely to lead to supply chain disruptions and higher prices. “No matter what happens, this is a committee that is determined to use its tools to make sure that higher inflation does not become entrenched. And so we are determined on that front and will deal with what comes,” said Powell.
Comments

Oh ya 4 year ago
Oh wow the US government says inflation is running at 7.5 % likely more like 15-18 if you figure it out like it was in 1980 and the raise interest by 1/4%. What a joke by i guess that all you can do after years of bad policy making.

Newsletter

Related Articles

0:00
0:00
Close
Three Scientists Awarded Nobel Prize in Medicine for Discovery of Immune Self-Tolerance Mechanism
OpenAI and AMD Forge Landmark AI-Chip Alliance with Equity Option
Munich Airport Reopens After Second Drone Shutdown
France Names New Government Amid Political Crisis
Trump Stands Firm in Shutdown Showdown and Declares War on Drug Cartels — Turning Crisis into Opportunity
Surge of U.S. Billionaires Transforms London’s Peninsula Apartments into Ultra-Luxury Stronghold
Pro Europe and Anti-War Babiš Poised to Return to Power After Czech Parliamentary Vote
Jeff Bezos Calls AI Surge a ‘Good’ Bubble, Urges Focus on Lasting Innovation
Japan’s Ruling Party Chooses Sanae Takaichi, Clearing Path to First Female Prime Minister
Sean ‘Diddy’ Combs Sentenced to Fifty Months in Prison Following Prostitution Conviction
Taylor Swift’s ‘Showgirl’ Launch Extends Billion-Dollar Empire
Trump Administration Launches “TrumpRx” Plan to Enable Direct Drug Sales at Deep Discounts
Trump Announces Intention to Impose 100 Percent Tariff on Foreign-Made Films
Altman Says GPT-5 Already Outpaces Him, Warns AI Could Automate 40% of Work
Singapore and Hong Kong Vie to Dominate Asia’s Rising Gold Trade
Trump Organization Teams with Saudi Developer on $1 Billion Trump Plaza in Jeddah
Manhattan Sees Surge in Office-to-Housing Conversions, Highest Since 2008
Switzerland and U.S. Issue Joint Assurance Against Currency Manipulation
Electronic Arts to Be Taken Private in Historic $55 Billion Buyout
Thomas Jacob Sanford Named as Suspect in Deadly Michigan Church Shooting and Arson
Russian Research Vessel 'Yantar' Tracked Mapping Europe’s Subsea Cables, Raising Security Alarms
New York Man Arrested After On-Air Confession to 2017 Parents’ Murders
U.S. Defense Chief Orders Sudden Summit of Hundreds of Generals and Admirals
Global Cruise Industry Posts Dramatic Comeback with 34.6 Million Passengers in 2024
Trump Claims FBI Planted 274 Agents at Capitol Riot, Citing Unverified Reports
India: Internet Suspended in Bareilly Amid Communal Clashes Between Muslims and Hindus
Supreme Court Extends Freeze on Nearly $5 Billion in U.S. Foreign Aid at Trump’s Request
Archaeologists Recover Statues and Temples from 2,000-Year-Old Sunken City off Alexandria
China Deploys 2,000 Workers to Spain to Build Major EV Battery Factory, Raising European Dependence
Speed Takes Over: How Drive-Through Coffee Chains Are Rewriting U.S. Coffee Culture
U.S. Demands Brussels Scrutinize Digital Rules to Prevent Bias Against American Tech
Ringo Starr Champions Enduring Beatles Legacy While Debuting Las Vegas Art Show
Private Equity’s Fundraising Surge Triggers Concern of European Market Shake-Out
Colombian President Petro Vows to Mobilize Volunteers for Gaza and Joins List of Fighters
FBI Removes Agents Who Kneeled at 2020 Protest, Citing Breach of Professional Conduct
Trump Alleges ‘Triple Sabotage’ at United Nations After Escalator and Teleprompter Failures
Shock in France: 5 Years in Prison for Former President Nicolas Sarkozy
Tokyo’s Jimbōchō Named World’s Coolest Neighbourhood for 2025
European Officials Fear Trump May Shift Blame for Ukraine War onto EU
BNP Paribas Abandons Ban on 'Controversial Weapons' Financing Amid Europe’s Defence Push
Typhoon Ragasa Leaves Trail of Destruction Across East Asia Before Making Landfall in China
The Personality Rights Challenge in India’s AI Era
Big Banks Rebuild in Hong Kong as Deal Volume Surges
Italy Considers Freezing Retirement Age at 67 to Avert Scheduled Hike
Italian City to Impose Tax on Visiting Dogs Starting in 2026
Arnault Denounces Proposed Wealth Tax as Threat to French Economy
Study Finds No Safe Level of Alcohol for Dementia Risk
Denmark Investigates Drone Incursion, Does Not Rule Out Russian Involvement
Lilly CEO Warns UK Is ‘Worst Country in Europe’ for Drug Prices, Pulls Back Investment
Nigel Farage Emerges as Central Force in British Politics with Reform UK Surge
×