Fed Hikes Rates by 25 Basis Points Amid Energy Price Concerns

The US Federal Reserve raised interest rates by 25 basis points, citing a 'timelier' return of inflation to its target.

Axis Bank notes that while several inflation measures have remained above 2 per cent since 2020 and headline inflation has risen recently, the Fed's language suggests it is focusing on underlying inflation trends, including core, median, and trimmed measures, which continue to move towards the target.

The lender estimates that the Fed could skip an October hike and deliver potentially just one more increase by March 2027, compared with market expectations of 75 basis points of additional tightening.

Energy prices remain a key risk to inflation, particularly amid the West Asia conflict, while fresh tariffs could renew price pressures as the impact of earlier tariffs fades.