Fed Hikes Interest Rate Amid Ongoing Middle East Tensions

The US Federal Reserve has increased its key interest rate by 0.25 percentage points to 3.75-4%, marking the first hike since 2023 and reversing last year's easing cycle due to persistent inflation.

The decision comes amid high-stakes tensions between Washington and Tehran, further complicating the global economic landscape as commercial traffic through the Strait of Hormuz remains severely disrupted.

As a result, Brent crude's price has retreated in response to the Fed's announcement, pulled lower by a stronger US dollar. Higher interest rates can dampen demand growth and make dollar-denominated commodities like oil more expensive for holders of other currencies, according to Stephen Innes, managing partner at SPI Asset Management.

Innes noted that the Fed delivered what was expected, but emphasized that not hiking would have created more noise, especially after the recent spike in oil prices. The US central bank remains committed to achieving a 2% inflation rate over the long term.