Fed Set to Hike Rates Amid War-Driven Inflation and Bond Yield Pressure

The Federal Reserve is poised to raise its benchmark interest rate for the first time in over three years. The expected quarter-point hike would bring the target range to 3.75% to 4%, with Chair Kevin Warsh set to hold a press conference and update member forecasts following the decision on Wednesday afternoon US time.

War-driven inflation and bond yields have put pressure on policymakers, with long-term yields moving regardless of Fed actions. The 10-year Treasury note traded at 5% on Tuesday, briefly touching levels unseen since 2007, while the average 30-year fixed mortgage rate topped 7% last week.

Treasury Secretary Scott Bessent defended the department's purchases of long-dated bonds, arguing yields would have been higher without intervention and citing 'two of the most successful bond Treasury auctions that we've had in 20 years.'

The deficit debate intensified after President Trump promised a $5,000 dividend for every US adult if Republicans win the midterms. The pledge is estimated to cost over $1.3 trillion, comparable to the government's projected $1.27 trillion interest expense in fiscal 2026.