Fed Hikes Rates Amid Strong Economy, Sticky Inflation

The US Federal Reserve raised interest rates by 25 basis points to a range between 3.75% and 4%, following its decision to hold rates steady in July. Fed Chair Kevin Warsh cited a strengthening economy, persistent inflation, and heightened geopolitical risks as the reasons for the rate hike.

Warsh noted that recent data showed the US economy had strengthened, with labor market indicators improving. However, inflation trends during the summer failed to demonstrate sufficient progress towards the Fed's 2% target, he said.

The unemployment rate remained low at 4.1%, and job openings and average weekly hours continued to increase, Warsh added. He emphasized that inflation is too high, with annual headline personal consumption expenditures inflation likely around 3.6% in August and core PCE inflation running at approximately 3.2%. Too many categories continue to register price increases above 3% on six- and 12-month bases, he said.

Warsh dismissed suggestions that the Fed had followed financial markets, which had largely priced in the increase. He stated that the decision was made based on their assessment of the situation, citing the employment trajectory and the economy's underlying strength.