Federal Reserve Hikes Key Rate Amid Stubborn Inflation

The Federal Reserve has raised its benchmark interest rate for the first time in three years to combat stubbornly high inflation. The quarter-point increase brings the key rate to about 3.9%, which could lead to higher borrowing costs for mortgages, auto loans, and credit cards.

According to the Fed's preferred measure, inflation was 3.7% in July compared with a year ago, up from 2.3% in April 2025. Core inflation, excluding food and energy categories, was 3.3% in July, far above the Fed's target of 2%.

Despite strong consumer spending, which rose 1.2% in August, the rate hike aims to quell rising costs for groceries, gas, and housing. The move comes as Americans are already struggling with high costs ahead of the midterm elections, just seven weeks away.