Fed Set for First Rate Hike Since 2023 Amid Ongoing Iran War Uncertainty
The Federal Reserve is set to announce its decision on interest rates on Wednesday, which will be the first rate hike since 2023. The move comes as the US economy continues to grapple with elevated inflation, exacerbated by the ongoing Iran war and global oil price volatility.
Global crude prices have risen to a four-month high, reaching $108 per barrel, while the average price of a gallon of gasoline has topped $4.30 in the US. The increase in oil prices has put upward pressure on borrowing costs for credit cards and mortgages, further straining the economy.
Financial markets expect the Fed to raise interest rates by a quarter of a percentage point, with a 94% probability according to the CME Group's FedWatch tool. This move is seen as necessary to contain inflation, which remains above the Fed's target rate of 2%, at 3.4% in August.
Despite the economic strain, the labor market has shown resilience, with employers adding 162,000 workers in August. However, record-high diesel prices have raised transport costs for everyday products, including groceries and furniture.