US Fed Hikes Rates Amid Strong Economy, Rising Inflation Concerns

The US Federal Reserve raised interest rates by 25 basis points to 3.75-4 percent in its September meeting, marking the first rate hike since July 2023.

The decision was unanimous and reflects a hawkish stance from the Fed, which cited unabated growth, stubborn inflation, a vibrant private sector, and a resilient labor market as reasons for the increase.

However, the forecast on rates ahead has shifted from a rate cut in 2027 to another rate hike this year followed by a steady rate regime in 2027, due to rising fuel and energy costs linked to the ongoing Middle-East war.

Despite rate hikes typically cooling demand and lowering inflation, the current situation is different, with inflation driven by supply shocks in oil and other commodities due to external factors. The question remains whether rate hikes can fix supply chains and high oil prices, or if they will slow economic growth instead.