US Interest Rates Rise to Combat Inflation Ahead of Midterm Elections

Higher interest rates are raising borrowing costs in the US economy, a trend that could affect investment decisions. The Federal Reserve raised interest rates for the first time since 2023 to combat persistent inflation, partly driven by higher oil prices following the US-Iran conflict.

The increase brings interest rates to 3.75%-4%, with President Donald Trump calling for lower rates despite the Fed's decision. This move follows similar action by the European Central Bank, which has raised interest rates twice in 2026.

For investors, a rising-rate environment can have significant implications. Higher borrowing costs may weigh on economically sensitive sectors and affect how investors value future earnings. The return to higher interest rates could be another setback for President Trump as he faces the November midterm elections, where Republicans hold narrow majorities in both chambers but are likely to lose control of the House of Representatives.

The US stock market grew 20.0% during the last 12 months to August 2026, with smaller companies outperforming larger peers by returning 25.2%. Energy was the best-performing sector, while utilities lagged behind at just 2.6%. The Artemis US Smaller Companies fund rose 32.1%, outperforming its benchmark and sector average.